Should You Buy Nvidia Stock While It's Less Than $120?

Nvidia (NASDAQ: NVDA) has wowed investors with its triple-digit earnings gains and solid stock performance in recent times. This is thanks to the company's dominance in one of today's most-talked about technologies: artificial intelligence (AI). Nvidia holds 80% of the AI chip market, and considering the company's focus on innovation, this leadership is likely to last.

Still, stocks don't climb non-stop forever, and Nvidia has shown us that in recent weeks. The company completed a stock split -- a move to lower a high-flying stock price to levels more appealing to investors -- on June 7, and the stock opened at its new price of about $120 as of June 10. That was down from the pre-split price of more than $1,000. But after rising as high as about $135, the stock has slipped 16% -- and today is trading below its post-split opening price.

Should you buy Nvidia while it's trading for less than $120? Let's find out.

Image source: Getty Images.

Nvidia's AI leadership

First, let's take a quick look at why Nvidia shares have been soaring over the past few years. As mentioned, the company has built a solid leadership position in the high-growth area of AI. Nvidia sells the graphics processing units (GPUs) that power the most crucial of AI tasks, such as the training and inference of large language models (LLMs). The LLMs then can go on and do their job of solving complex problems -- and this is something that's helping Nvidia customers gain in efficiency and develop new products.

But Nvidia hasn't stopped here. The company has developed an entire suite of AI products and services, meaning those aiming to build AI platforms can turn to Nvidia for all of their needs. This has helped Nvidia report record revenue quarter after quarter and achieve quarterly revenue that's higher than a full year of revenue just a few years ago.

As a result, Nvidia shares have soared 2,400% over the past five years, and just a year ago the company's price-to-earnings ratio surged past 240 -- a high level, even for a growth company.

Now let's consider whether the company's growth prospects make it a buy now, while it's trading for less than $120.

More AI competition

The bad news is Nvidia faces more competition than it did a couple of years ago. Rivals including Intel and Advanced Micro Devices are developing better and better chips -- and they've pointed out how their latest products can in certain cases outperform Nvidia's current top chip, the H100.

These companies are likely to carve out market share and become successful in the AI market, but I don't think this will significantly impact Nvidia's growth. For two reasons. First, Nvidia has put a major focus on innovation, promising to update its top-performing chips annually. This should make it difficult for others to soar ahead when it comes to chip performance. Second, the AI market is high growth, meaning there's room for more than one player to succeed. Analysts predict that today's $200 billion market will reach beyond $1 trillion by the end of the decade.

Nvidia's investment in growth, which will result in regular product releases and a presence in new growth areas like software and sovereign AI, should help the company to continue delivering revenue increases well into the future. The company's next catalyst is the release of its Blackwell architecture and best-performing chip ever -- this is a major launch and potential gamechanger, so even if the launch itself doesn't immediately lift the stock, revenue gains from Blackwell in upcoming quarters could do the job.

All of this means there's reason to be optimistic about Nvidia's growth moving forward, and that should support share price gains.

Nvidia's valuation

But is now time to buy? A look at valuation shows us that Nvidia trades for 66 times trailing-12-month earnings. This isn't cheap, but it's down considerably from past levels even though Nvidia's revenue continues to climb -- and, as mentioned, growth prospects look strong. Of course, it's impossible to predict with 100% certainty whether Nvidia will rebound from recent losses and valuation will climb in the near future.

It is fair to say, though, that the stock has what it takes to advance from here over the long term , and we could see valuation advance from today's levels. All of this means that, right now, it's a great idea to buy this AI leader while it's trading for less than $120 -- and set yourself up for a potential win down the road.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy .