Is NVDA Stock A Buy, Sell, or Hold?

NVDA has quickly become a dominant supplier for the data center industry, with substantially most systems now using its components.

In regards to valuation, the stock is trading at 53x last year’s earnings. I can see the company growing its top line at a 20% clip for many years. With operating leverage, earnings should grow faster at a 20% to 30% rate. That puts the current stock price at around a 2x price to earnings growth ratio (‘PEG ratio’), which seems very reasonable for a company with such a clear secular growth story. That seems enough to justify a buy rating. That said, given that most tech stocks are still substantially lower from all time highs and now trade at (in my opinion) bargain basement valuations, is a “reasonable valuation” enough to justify buying NVDA stock?

There are some risks here as well. For starters, NVDA suffered a ransomware attack last week. Considering NVDA’s importance in the technology sector, it may be viewed as an attractive target for cyber terrorism. It is also possible that the company may need to remain competitive on pricing in order to continue growing its business. While NVDA is the market leader in GPUs, there is no guarantee that competitors will not be able to catch up. That may prove to be an issue considering that the valuation clearly requires growth to continue over the several years.

I could see myself buying into the stock if and when the rest of the broader tech sector recovers, and I expect the stock to deliver positive returns from here and even now. That said, I rate shares a hold because at a 2x PEG ratio, the stock is trading at the rich end of my buying range, and I do not find shares attractive relative to cheaper tech stocks elsewhere.