Nvidia stock has rocketed in price over the last year, sparking a frenzy to buy into one of the fastest-rising shares around.
Even those who don’t follow the markets closely will have noticed how the semiconductor producer has gone from next-to-nothing to the world’s second most valuable company (after Microsoft) in double quick time, with a stock that was once worth peanuts now soaring above $120 USD a share (or $1,200 before the 1 for 10 stock split).
Investors are now looking at such a massive rise and wondering if there is still space to get onboard with Nvidia stock while the price is still heading in the right direction.
But with any single share, there are inherent risks – not least, the ability of the hottest stock of the first half of 2024 continuing to be so going into the latter part of the year.
Stockspot has always recommended a diverse portfolio, which can help to gain exposure to market-leading stocks while also mitigating the inherent risk that comes with volatility on fast-moving shares like Nvidia.
But first, let’s circle back to fundamentals. What is Nvidia? And why is their stock so hot right now?
What is Nvidia?
Nvidia is a global semiconductor company that makes high-end graphics processing units (GPUs) used in a lot of artificial intelligence (AI).
Though it was founded all the way back in 1993, it only shot to prominence in recent years – in fact, you could buy Nvidia stock for less than $1 USD as recently as 2016.
Since then, AI has become more and more prominent and Nvidia’s place as a leading provider of semiconductors to help further the sector has led to an explosion of growth, culminating in a valuation of over $3 trillion, surpassing even that of long-time market favourite Apple.
AI is the hottest area at the moment and Nvidia is the hottest stock in that area, so it’s become enormous. It’s one of the biggest companies in the world from a market capitalisation perspective from almost nowhere.
It’s not just hype, too. Nvidia is living up to the excitement because revenues are going through the roof and earnings are exceeding expectations.
Should I buy Nvidia shares?
People are rightly wondering if they should have Nvidia stocks in their portfolio, and the truthful answer is that they should – as long as they are aware of the risk and can mitigate them.
That’s because typically, high growth stocks are the ones that retail investors add to their portfolio at the wrong time.
Remember, you’re not reading this in 2020, when Nvidia’s stock price was low, you’re reading it now, when it has already gone through a massive growth cycle.
The stock might have exploded in recent years, sending shockwaves through the markets, but the excitement around it is already built into the stock price and therefore the risk is a bit more balanced than it was a few years ago.
Like with any share purchase, it pays for prospective buyers to ask themselves if they have information that nobody else has, because to beat the market, you have to have knowledge that other investors don’t have.
Nvidia stock is already well known and very hyped, so there likely aren’t too many people out there who have that extra insight.
How Nvidia stocks can fit into a diverse portfolio
The risk of buying a hot stock like Nvidia is that you have to weather the volatility to see the growth.
A good example is Amazon’s stock in the early 2000s. Their share price fell by 95% from its 2000 high and investors had to grit their teeth and hold.
Not many people were able to do so through such a massive fall, even though those that did saw the ultimate growth of such a successful company in the end.
That’s where diversification comes in. The best way to own a stock like Nvidia is in a diversified way, and Stockspot recommends doing that through index ETFs.
Buy Nvidia through ETFs
For a current example, the Global 100 Index ETF (IOO), which we recommend to our clients, has the 100 largest companies in the world, including Nvidia.
In fact, Nvidia’s share price has grown so much that it now makes up over 11% of that index ETF, so investors can get exposure to Nvidia stock, as well as other massive companies, as they are growing as a proportion of the overall fund.
Index funds allow you to access these companies as they’re growing without having so much exposure that it will blow you up when they go through the tough times, because you’re diversified into other companies and indeed other sectors and industries within your portfolio.
With any hot stock, we believe it’s worth owning it in a diversified way through low cost ETFs, which we recommend to our clients, so you can get access to the growth without as much exposure to the risk.
View our portfolios past performance and find out how we can help you reach your long term goals.
Disclaimer: Investment in financial products involves risk. Past performance of financial products is no assurance of future performance.
This article contains general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this information, you should assess your own circumstances or seek advice from a financial adviser.
