My Top Artificial Intelligence Stock to Buy Right Now

The excitement surrounding this AI stock might have soared a bit too high, but don't let this moment pass you by. It could be the perfect time to invest.

Nvidia (NVDA) kicked off 2023 as a leading name in the artificial intelligence (AI) sphere. Its expertise in data center chips, which are essential for training and operating advanced AI models, places it at the forefront of a rapidly growing market. However, much like the tech boom of the late 1990s, it's easy for enthusiasm to outpace reality at times.

Recently, the stock market has started to deflate some of this inflated enthusiasm. The Nasdaq Composite index has dropped almost 10% from its highest point, teetering on the edge of what could be classified as a correction. Consequently, shares of Nvidia have experienced a significant decline, falling nearly 25% since their peak in early January.

For many investors, falling stock prices can be alarming. Nevertheless, it's crucial to approach these dips with caution rather than panic. Nvidia's recent downturn presents a potential buying chance for those interested in long-term investments. Here’s how to seize this opportunity.

Nvidia Isn't a Bubble

While the hype surrounding new technologies sometimes leads to bubbles, Nvidia appears to be a stable option. The stock’s significant appreciation in the past couple of years is backed by robust business growth, not just excitement. Over the last four quarters, Nvidia has generated $130 billion in revenue, with a remarkable growth rate of around 80%:

NVDA Operating Revenue (Quarterly YoY Growth) data by YCharts

This growth trajectory is expected to continue. Major tech firms investing in AI data centers, referred to as AI hyperscalers, have indicated plans for further investment into 2025. Reports suggest that spending on AI could exceed $320 billion this year. Leading companies like Alphabet and Microsoft noted in their latest earnings reports that demand for AI services in the cloud is outstripping the available capacity.

Additionally, OpenAI, a key player in AI development and the creator of ChatGPT, recently mentioned it had exhausted its supply of GPU chips, which has slowed its product rollouts. This indicates a strong, ongoing demand for Nvidia’s offerings in the AI market, suggesting that the current growth is substantive rather than speculative. The stock, trading at a price-to-earnings (P/E) ratio of 38, has analysts predicting earnings per share to rise by more than 50% this year, with an average annual growth of 34% in the long term.

The Broader AI Landscape

There's no such thing as a completely risk-free stock, and Nvidia is no exception. A potential risk lies in the limited number of companies investing heavily in AI; if they divert their funds elsewhere or stop investing altogether, Nvidia's growth could be threatened. This might explain the stock’s relatively low valuation compared to its expected earnings growth.

However, evidence suggests that Nvidia is likely to thrive, even through temporary changes in the AI data center investment cycle. The generative AI opportunity transcends applications like ChatGPT, touching areas such as self-driving cars, humanoid robots, and AI systems taking over roles in call centers. Moreover, as technology continues to advance and become more affordable, AI capabilities will extend to smaller businesses and even individuals. Notably, Nvidia recently unveiled a Blackwell-powered supercomputer that can fit into a desktop.

The potential for AI innovation is broad, going beyond the current major players. Nvidia is well-positioned to capitalize on that innovation, especially if it succeeds in building a comprehensive ecosystem around its leading role in producing accelerator chips.

Action Plan

Nvidia continues to produce impressive business results. As long as that remains the case, it’s difficult to see how this company could fall out of favor in what could be considered the most significant technological shift of this era (AI). Even in a scenario where Nvidia grows its earnings at just 19% annually—half of what is currently predicted—the stock’s P/E ratio translates to a price/earnings-to-growth (PEG) ratio of about 2, which is a reasonable valuation for that level of growth. In simpler terms, Nvidia seems to offer some level of safety even if things don’t go perfectly in the future.

Of course, share prices can fluctuate due to market volatility and various economic factors. Recent weeks have illustrated this reality, as Nvidia has decreased nearly 25%, a trend that could persist if the broader market continues to face turbulence.

While Nvidia stands out as a top AI stock to consider buying now, investors should approach carefully. Implementing a dollar-cost averaging strategy—purchasing shares gradually—can help mitigate risk in case prices fall further. Remember, attempting to time market bottom perfectly is nearly impossible.

Looking ahead to the next decade, it’s clear that Nvidia’s combination of future potential and current value makes it an attractive opportunity for investors.

AI, Investment, Stock