Becoming the world’s most valuable listed company by market capitalisation implies a booming share price – and chip giant Nvidia (NASDAQ: NVDA) has certainly delivered on that front. The Nvidia share price is up by a jaw-dropping 1,012% over the past five years.
But how has it been doing more recently?
Superb 12-month returns
Investor concerns about a possible AI spending bubble, geopolitical risks and global economic uncertainty have been weighing on the Nvidia share price.
It has fallen 12% in the past month or so. That is well short of a crash, but is certainly volatility.
Still, even despite that recent decline, the Nvidia share price today stands 44% higher than it did a year ago.
So ignoring exchange rate movements (which can work for or against UK Investors buying US dollar-denominated stocks), £1,000 put into Nvidia stock this time last year ought now to be worth around £1,440.
That is excellent in my view, especially since a year ago Nvidia was not some under-the-radar stock few people had heard of. It was already a giant striding over the stock market in full view.
But wait – there’s more!
That capital gain is impressive enough. But let’s not forget the dividends! You may think I am joking here. After all, Nvidia’s dividend yield is only 0.5% — and even that is after a mammoth recent hike.
So for most of the past year, the £1,000 would have been earning much less than 0.5%.
Still, the dividend increase means that much invested at the lower share price a year ago (and therefore earning a higher yield than someone buying today) would now generate around £7 a year in passive income from dividends.
That might not sound much but is still much better than most investors expected a year back. I think it is also worth mentioning as the incredible 2,400% increase in quarterly dividend per share that kicks in from this month illustrates just how much spare cash Nvidia is generating.
If that continues, the dividend could grow again, though likely at a far more modest rate.
I’m eyeing Nvidia, but not buying
The strong share price performance and huge dividend increase point to a company in clover. Nvidia’s sales revenues and profits are surging, driven by huge demand for its costly chips. Thanks to its proprietary designs, installed user base and carefully cultivated network of customers, I think the company may go from strength to strength.
The recent share price fall has made me consider whether now is the time to add Nvidia to my portfolio.
Tempted though I am, I am holding off. The current price-to-earnings ratio of 32 tempts me, but not enough given the medium-term risks to earnings. Those include potentially cooling chip demand following initial AI build-outs, trade restrictions on some chip exports and rising competition from the makers of less sophisticated but much cheaper chips.
Still, I like Nvidia’s business a lot and continue to look out for a potential buying opportunity if the share price continues its recent fall.
Meanwhile, I have been taking advantage of less racy valuations to buy shares in some other parts of the market left behind by AI mania.
