Semiconductor stocks have skyrocketed in April as tensions in Iran have cooled, AI spending continues to surge, sector earnings reports have impressed, and chip shortages are proliferating across the industry.
That boom has driven the iShares Semiconductor ETF (NASDAQ: SOXX) up 40.4% for the month through April 24, and Nvidia (NASDAQ: NVDA), the sector leader and most valuable company in the world, has ridden those tailwinds.
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The AI chip superstar has actually underperformed its peer group, gaining 19% for the month, but its gains have been sufficient to put it over the $5 trillion market cap milestone again, after it briefly hit that level in late October.
Now trading just 2% below its all-time high, is Nvidia a buy, sell, or hold? Let’s take a look at the best option.
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Several months ago, fears of an AI bubble were weighing on AI stocks. Those fears seem to have disappeared as valuations for AI start-ups like OpenAI and Anthropic are soaring, and SpaceX, which is a major Nvidia customer, is targeting a valuation of $2 trillion.
The four largest hyperscalers are set to spend around $700 billion on capital expenditures this year, much of it on chips, and in recent weeks, the signs of a shortage in the industry have mounted.
Meanwhile, Nvidia’s dominance of the data-center GPU market remains intact, and its revenue growth rate has even accelerated in recent quarters, clocking in at 73% in the fourth quarter as the company continues to deliver sky-high margins. There are no signs of weakness in the business, and the supply/demand dynamics in the industry continue to favor chipmakers like Nvidia.
There are two main bearish arguments against Nvidia. The first is that the boom from AI will eventually fade. It’s unclear if AI is a bubble, but Nvidia has historically been a cyclical stock, as has chip demand broadly.
Demand for AI chips will almost certainly slow eventually, but the question is, how big can Nvidia get before that happens? As long as demand outstrips supply, a slowdown won’t be a problem for the company.
The other threat potentially facing the company is that its competitive advantage in GPUs, accelerators, and related components gradually gets eroded as other chips, including those from tech giants like Amazon and Alphabet, or direct competitors like AMD, catch up to it.
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At this point, the proverbial easy money has been made in Nvidia. That the company has lagged its peer group this month shows that the boom that lifted Nvidia earlier has spread to the rest of the sector, including memory chip and CPU makers.
At a valuation of $5 trillion, it’s going to be difficult for the stock to double from here. Its market cap is nearly $1 trillion higher than the next most valuable company, Alphabet.
The upside to Nvidia stock now seems more limited than it is for other smaller chip stocks, but it still has a wide economic moat thanks to a closely connected ecosystem of products, including its CUDA software library, and a monopoly like market share of the data center GPU market.
Even near an all-time high, Nvidia is still a strong buy. The stock looks undervalued, trading at a price-to-earnings ratio of just above 40, which looks like a great price considering its revenue jumped 73% in its most recent quarter.
Meanwhile, the purported challenges the bears said the company would face haven’t materialized, and its new Rubin platform is on track to be available in the second half of 2026, which will be significantly more expensive than the Blackwell platform, driving another leg of growth.
CEO Jensen Huang recently predicted that the company would generate $1 trillion in revenue over the next two years, a bold forecast compared to Wall Street estimates. At a time when the AI boom appears to be accelerating, Nvidia remains a stellar business at a good price. It’s a clear buy.
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Jeremy Bowman has positions in Amazon and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Nvidia, and iShares Trust-iShares Semiconductor ETF. The Motley Fool has a disclosure policy.
Nvidia at $5 Trillion: Buy, Sell, or Hold? was originally published by The Motley Fool
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