If I Could Only Buy One Stock Right Now, This Technology Stock Would Be It

There are many reasons to consider buying this technology giant, and mainly one reason against it.

In recent years, stock splits have made a return to popularity. While previously common in the 1990s, this practice fell out of favor before being revived by a new wave of investors. Typically, a company will choose to split its shares after witnessing strong growth and impressive financial performance that lead to a soaring stock price.

This year has provided several notable instances:

• Nvidia (NVDA) initiated a 10-for-1 split effective on June 7, 2024.
• Chipotle announced a 50-for-1 split scheduled for June 25, 2024.
• Broadcom executed a 10-for-1 split, set to take place on July 12, 2024.
• Super Micro Computer carried out a 10-for-1 split, effective September 30, 2024.

The common theme among these diverse companies is their history of market-beating returns spanning years, if not decades.

If I could only choose to invest in one stock at this moment, Nvidia would lead the choices on my list. Here’s why.

A Unique Vision

Many investors point to the immense potential surrounding artificial intelligence (AI) as a critical reason to invest in Nvidia. While that is indeed a vital aspect, what is truly fascinating is CEO Jensen Huang's remarkable ability to foresee and cater to emerging needs and trends.

Nvidia pioneered the graphics processing unit (GPU), revamping the gaming industry in 1999. By 2006, the company had adapted its technology to enhance supercomputing. What started as a humble GPU is now the benchmark for cloud computing and data centers globally, commanding a dominant 98% share of the data-center GPU market last year, according to TechInsights.

Remarkably, Huang laid the groundwork for Nvidia to tackle the forthcoming AI revolution as early as 2013, placing significant bets on technology that had yet to gain traction. When AI surged in popularity early last year, Nvidia was perfectly positioned to benefit from the groundwork laid a decade earlier.

The Financial Performance Tells the Story

The saying goes, "A picture paints a thousand words." In this context, Nvidia's financial performance speaks volumes. For the second quarter of fiscal 2025 (ending July 28), Nvidia boasted record revenues of $30 billion, representing a 122% increase year-over-year and a 15% sequential rise. The extraordinary results were fueled by record data-center revenues amounting to $26.3 billion, which soared by 154%. Profits also surged, as reflected in the diluted earnings per share (EPS), which reached $0.67, marking a 168% increase.

Management forecasts that Nvidia's strong performance will persist, albeit at a slightly slower rate. They are guiding for revenues of $32.5 billion, which would indicate a 79% year-over-year growth, alongside an increase in profitability. Although this growth rate is slower than the triple-digit surges seen over the past five quarters, it remains an impressive achievement.

Why Invest Now?

You might wonder if now is the right time to invest, considering Nvidia’s remarkable trajectory over the past year. The stock has skyrocketed by 837% since the start of last year (as of the last market close) and it recently hit a new peak.

However, despite the significant gains already achieved, we are still at the early stages of AI development. New applications are continually being identified. Some skeptics might point to initial missteps as evidence that the technology isn’t ready for widespread adoption, and to some extent, that’s true. Nevertheless, it won’t be long before these initial challenges are resolved, allowing AI to reach its full potential. With that in mind, I contend that the most substantial AI-related gains are still ahead.

Predictions about the generative AI market vary widely, with no clear consensus on its future valuation. Bloomberg Intelligence estimates the market could be worth $1.3 trillion by 2032. An even more optimistic forecast comes from Ark Invest, where Cathie Wood suggests the AI software market alone might drive an incremental spending of $13 trillion by the decade's end. In her bullish scenario, that could reach an astounding $37 trillion. The reality is that we still don’t know the full extent of generative AI's potential, but estimates continue to rise.

Moreover, critics may argue that Nvidia's stock is excessively priced and “built to perfection.” They have a point, as Nvidia is currently trading at 64 times earnings and 35 times sales, which in many circumstances would be considered exorbitant. Yet, if the context were different, I might agree with them.

Analysts, who have often underestimated company performance in the past year, anticipate Nvidia will achieve EPS of $4.05 for its fiscal 2026 starting in January. Based on the stock's recent closing price, that translates to around 33 times forward earnings—only slightly above the typical 30 times earning multiple observed in the S&P 500. Furthermore, Wall Street projects Nvidia's profits to grow by 52% per year over the next five years, supporting the argument for a premium valuation.

In conclusion, this forms a compelling case that Nvidia’s growth story is far from finished, with the AI market continuing to expand, presenting attractive investment opportunities. Besides, I trust Huang's ability to also predict future trends and pivot Nvidia's technology to meet emerging demands, leading to significant profits.

In summary, if I could only purchase one stock right now, it would undoubtedly be Nvidia.

stock, Nvidia, investment