Nvidia (NASDAQ: NVDA) stock’s produced incredible gains in 2024. But it’s had a double-digit percentage pullback recently.
I own a few Nvidia shares and they’ve really boosted my investment portfolio this year. Would I be crazy to buy more shares now? Let’s discuss.
Is it cheap or expensive?
There are two main factors I’m going to look at in order to answer this question:
- Nvidia’s valuation today
- Nvidia’s size in my portfolio
Starting with the valuation, I actually think it looks quite reasonable. At present, the tech stock trades at roughly 31 times next year’s earnings per share (EPS) forecast. That’s not high relative to the level of growth the company’s generating.
Next year, EPS is expected to grow 38%. So the price-to-earnings-to-growth (PEG) ratio here is less than one right now. A PEG ratio under one can signal that a stock’s cheap.
Of course, if growth was to slow, or come in below Wall Street’s expectations due to lower demand for AI chips, Nvidia’s share price could fall.
However, I don’t believe growth’s going to slow dramatically in the near term. One reason I say this is that recent earnings from the likes of Alphabet and Meta Platforms have shown that these companies are spending an absolute fortune on AI chips at the moment. Another is that rival AMD recently said it was seeing huge demand for its AI chips. In the second quarter of 2024, its data centre revenues more than doubled year on year.
So overall, I don’t have a problem with Nvidia’s valuation today.
Where it sits in my portfolio
Moving on to my portfolio, this is where things get a little more complex. After Nvidia’s huge share price rise this year, the stock’s now about 7% of my portfolio. That’s quite a large position. I wouldn’t want it to be much bigger than this.
That’s because this stock can fall 30% or more in the blink of an eye (it fell nearly 40% in June and July). If I had 20% of my portfolio in Nvidia and the stock fell 50%, it could really hurt my overall returns.
So I need to be sensible here and think about risk management.
I would be comfortable boosting the size of my position a little. But only by a percentage point or two.
Will I buy?
Putting all this together, I don’t think it would be crazy to buy more Nvidia shares for my portfolio today. The stock trades at a reasonable valuation (in my view) and I have the risk tolerance to boost the size of my position slightly.
Of course, I’d love to buy the stock at a lower price. So I may hold off on buying right now just to see if market volatility creates a better buying opportunity in the weeks ahead.
This post was originally published on Motley Fool
