Is it worth buying Nvidia stock while it is below $120?

Nvidia (NVDA -1.30%) has wowed investors with triple-digit profits and solid stock performance in recent times. That’s thanks to the company’s dominance in one of the most talked-about technologies today: artificial intelligence (AI). Nvidia has 80% of the AI ​​chip market, and given the company’s focus on innovation, that leadership is likely to continue.

But stocks don’t keep rising forever, and Nvidia has shown us that in recent weeks. The company split its stock — a move designed to bring its rapidly rising share price down to more attractive levels for investors — on June 7, and the stock opened at a new price of around $120 as of June 10. That was down from its pre-split price of over $1,000. But after rising to around $135, the stock fell 16% — and today trades below its post-split opening price.

Is it worth buying Nvidia when it sells for less than $120? Let’s find out.

Nvidia AI Leaders

First, let’s take a quick look at why Nvidia stock has been soaring over the past few years. As mentioned, the company has built a solid leadership position in the high-growth AI space. Nvidia sells graphics processing units (GPUs) that handle critical AI tasks, such as training and inferring large language models (LLMs). Then, the LLMs can go on and do their job of solving complex problems — and that’s what helps Nvidia customers improve performance and develop new products.

But Nvidia didn’t stop there. The company has developed a full suite of AI products and services, meaning that those looking to build AI platforms can turn to Nvidia for all their needs. This has helped Nvidia report record revenue quarter after quarter, and achieve quarterly revenue higher than full-year revenue just a few years ago.

As a result, Nvidia’s stock is up 2,400% over the past five years, and just one year ago, the company’s price-to-earnings ratio exceeded 240 — a high level even for a growth stock.

Now let’s consider whether the company’s growth prospects make it a buy now, when its shares are trading below $120.

More AI competition

The bad news is that Nvidia has more competition than it did a few years ago. Rivals including Intel AND Advanced Micro Devices are developing better and better chips — and they point out that their latest products can, in some cases, outperform Nvidia’s current best chip, the H100.

These companies will likely gain market share and succeed in the AI ​​market, but I don’t think it will have a significant impact on Nvidia’s growth. For two reasons. First, Nvidia has placed a heavy emphasis on innovation, promising to update its top chips every year. That should make it harder for others to leapfrog ahead in terms of 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 exceed $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 continue to grow revenue in the future. The company’s next catalyst is the release of the Blackwell architecture and its best-performing chip ever — a major launch and potential gamechanger, so even if the launch itself doesn’t immediately boost the stock, revenue growth from Blackwell in the coming quarters could do the trick.

All of this means there is reason to be optimistic about Nvidia’s future growth, which should translate into higher stock prices.

Nvidia Company Valuation

But is now the time to buy? A look at the valuation shows that Nvidia is trading at 66 times its trailing 12-month earnings. That’s not cheap, but it’s significantly lower than previous levels, even though Nvidia’s revenues continue to grow — and, as mentioned, its growth prospects look solid. Of course, it’s impossible to predict with 100% certainty whether Nvidia will rebound from its recent losses and see its valuation rise in the near future.

However, it is fair to say that the stock has what it takes to go further for longer period of timeand we could see the valuation rise from today’s levels. All of this means that it’s a great idea to buy this AI leader now while it’s trading for less than $120 — and position yourself for potential profits 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 call options on Intel and short August 2024 $35 call options on Intel. The Motley Fool has a disclosure policy.