My Top AI Stock to Consider Investing In Right Now

The current enthusiasm surrounding a specific AI stock may have reached excessive levels, but investors should not overreact and potentially miss out on a valuable buying opportunity.

Nvidia (NVDA) has emerged as the leading company associated with the rapid expansion of artificial intelligence (AI) in early 2023. The demand for data center chips that support the training and functioning of advanced AI models has resulted in a thriving market where Nvidia stands as the primary competitor. However, similar to the internet boom of the late 1990s, the excitement around innovative technology can sometimes lead to inflated expectations.

In recent times, the stock market appears to be retracting a bit. The Nasdaq Composite is nearly 10% off its peak, approaching a technical correction. Moreover, shares of Nvidia have decreased by nearly 25% since their highest point in early January.

While declining stock prices can be concerning, it is vital for investors to resist the temptation to panic. The recent drop in Nvidia’s stock may present an excellent opportunity for long-term investors to buy in. Below, I’ll explain why and how to navigate this situation effectively.

Nvidia Is No Bubble

Like many emerging technologies, the buzz surrounding AI could create a bubble, akin to what happened with some internet companies in the past. Many tech stocks soared before crashing hard when enthusiasm dwindled. Although similar risks exist within the AI sector, Nvidia likely does not belong in that category. The company’s stock value has significantly increased over the last two years, primarily driven by genuine business growth rather than mere hype. Nvidia has generated $130 billion in revenue over the last four quarters, with its growth rate nearing 80%, and it shows no signs of slowing down.

Major technology players investing in AI data centers have indicated plans to continue investing well into 2025. Reports suggest that AI spending could exceed $320 billion this year, reflecting the high demand for AI capabilities. Companies like Alphabet and Microsoft have observed that cloud demand for AI solutions is outstripping available cloud capacity. In fact, OpenAI, a key AI developer behind ChatGPT, recently reported a shortage of GPU chips, which has delayed product launches.

It seems clear that the growth of Nvidia in AI is legitimate and vibrant. With a price-to-earnings (P/E) ratio of 38, and analysts projecting a 50% surge in earnings per share this year, followed by an average long-term growth estimate of 34%, Nvidia stands as a strong contender in the stock market.

The Big Picture in the AI Industry

It’s crucial to recognize that no stock is free from risk. Nvidia’s main risk factor is that the few large companies pouring funds into AI might divert their investments elsewhere or pull back altogether. Perhaps this explains why Nvidia’s valuation appears appealing in light of its expected earnings growth.

Despite these risks, there is reason to believe Nvidia can thrive beyond temporary investment cycles in AI data centers. The potential for generative AI extends far beyond familiar applications like ChatGPT; it includes advancements in autonomous vehicles, humanoid robotics, and AI solutions capable of performing tasks traditionally done by humans, such as customer service. Additionally, as technology progresses and costs shrink, AI development is expected to reach smaller businesses and even individual users. Nvidia has recently unveiled a new supercomputer called Blackwell, designed to fit on a desktop.

Innovations in AI might soon become accessible beyond today’s leading AI hyperscalers, with Nvidia positioned to capitalize on this trend through its dominance in accelerator chips.

Your Investment Game Plan

Nvidia consistently delivers impressive business results, and as long as this trend continues, it is hard to dispute the company’s importance in the field of AI technology. Even if Nvidia were to grow its earnings by just 19% annually over the long term—half of what analysts currently estimate—the stock’s current P/E ratio would translate to a price/earnings-to-growth (PEG) ratio of around 2, which is reasonable given its growth potential. This implies that Nvidia offers a level of safety, even if market conditions do not unfold as optimistically as anticipated.

Nevertheless, stock prices can fluctuate in response to broader market volatility and economic or geopolitical factors. Recent weeks have highlighted this instability, as Nvidia’s shares have dropped nearly 25%, a trend that may persist with ongoing market turbulence.

While Nvidia presents a strong case as the top AI stock to consider right now, investors should approach buying cautiously. Utilizing a dollar-cost averaging strategy—buying gradually over time—can be a wise way to capture value, especially if prices decline further. Keep in mind, accurately timing the market bottom is nearly impossible for most investors.

Looking ahead to the next decade, Nvidia’s combination of potential for growth and current valuation makes it an appealing investment choice in the AI sector.

Nvidia, AI, Investment