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A few weeks ago, after tariff disputes saw the price plummet, I considered adding some Nvidia (NASDAQ: NVDA) stock to my portfolio. I decided against it (although I did buy chipmaker Taiwan Semiconductor Manufacturing Co. (TSMC) at around the same time). Since then, Nvidia stock has soared an incredible 40% in a matter of weeks.
That is the sort of performance that we investors dream of. Not only that, but it means that Nvidia stock has now surged 1,497% in five years. Yes, 1,497%.
Now, those figures are in dollar terms. Recent currency fluctuations mean that an investor using pounds to buy the share may be showing a somewhat different return in their portfolio. Either way, it is the sort of return I would happily take.
So, why did I hesitate last month – and am I too late to buy now?
Business matters, but so does price
I have been eyeing Nvidia stock as a potential addition to my portfolio for a while.
It has high profit margins, lots of proprietary chip designs, a large installed customer base that for many chip needs has nowhere else to go, and is set to benefit from high spending as companies invest in their AI development.
But while I like to invest in great businesses – and I think Nvidia is such a thing – I aim to do so at what I see as an attractive price.
The valuation had been getting cheaper for a while, tempting me more – but it was still above what I wanted to pay.
Then, last month, uncertainty about US tariffs brought the share price down sharply. But it also introduced additional potential risks, from higher selling costs to reduced demand and possibly export bans. So the outlook for Nvidia had changed in an instant.
No regrets – I’m looking forward
So, in one sense I hesitated. But in another sense I did what I have been doing all along and continue to do now. I was looking for an opportunity to buy Nvidia stock when I felt the price I needed to pay offered me the right level of potential value, based on the information available to me at that time.
To set that in context, although Nvidia stock fell sharply, when I bought my TSMC shares, their price-to-earnings (P/E) ratio was around half that of Nvidia.
While the two businesses may not be directly comparable, I reckoned the value on offer to me at TSMC was then more attractive than if I had put the same money into Nvidia stock instead.
After the recent recovery in share price, Nvidia now sells on a P/E ratio of 46. That is too high for my tastes, not least because I reckon the risk profile for the chip designer is now worse than it was a couple of months ago.
I am not too late to buy Nvidia stock, but I will only do so if I find the price attractive. For now, I continue to watch and wait for a suitable opportunity.
