NVIDIA (NASDAQ: NVDA) has made incredible gains in 2024. But recently there has been a double-digit decline.

I own some Nvidia stock and it has really added value to my investment portfolio this year. Would it be crazy to buy more stock now? Let’s talk about it.

Is it cheap or expensive?

To answer this question, I will look at two main factors:

Let’s start with the valuation. I think it actually looks quite reasonable. Currently, the technology stock is trading at 31 times next year’s forecast earnings per share (EPS). That’s not much relative to the company’s growth level.

EPS growth of 38% is expected next year. The price-earnings-growth ratio (PEG) is therefore currently below one. A PEG ratio below one can be a sign that a stock is cheap.

However, if growth slows or falls short of Wall Street expectations due to lower demand for AI chips, Nvidia’s share price could fall.

However, I do not believe that growth will slow dramatically any time soon. One reason I say this is because recent earnings from companies like alphabet And Meta-platforms have shown that these companies are currently spending an absolute fortune on AI chips. Another reason is that the rival AMD recently announced that demand for its AI chips was huge. In the second quarter of 2024, its data center revenues more than doubled year-on-year.

So overall, I have no problem with Nvidia’s rating today.

Where it is in my portfolio

Now let’s move on to my portfolio. This is where things get a little more complicated. After Nvidia’s huge price increase this year, the stock now makes up about 7% of my portfolio. That’s a pretty big position. It shouldn’t be much bigger.

That’s because this stock can drop 30% or more in the blink of an eye (it dropped nearly 40% in June and July). If I had 20% of my portfolio in Nvidia and the stock fell 50%, that could significantly hurt my overall returns.

So I have to be sensible here and think about risk management.

I would have no problem increasing my position a little, but only by one or two percentage points.

Will I buy?

All in all, I don’t think it would be crazy to buy more Nvidia shares for my portfolio today. The stock is trading at a reasonable price (in my opinion) and I have the risk appetite to slightly increase the size of my position.

Of course, I would like to buy the stock at a lower price, so I may wait to buy to see if market volatility in the coming weeks provides a better buying opportunity.

The story continues

The post “Would I be crazy to buy more Nvidia shares today?” appeared first on The Motley Fool UK.

Further reading

Edward Sheldon holds positions in Alphabet and Nvidia. The Motley Fool UK has recommended Advanced Micro Devices, Alphabet, Meta Platforms, and Nvidia. Randi Zuckerberg, a former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Views on companies mentioned in this article are those of the author and as such may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners, and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2024