Nvidia is now worth more than Berkshire Hathaway, Tesla, and AMD combined. But will it last?

Nvidia (NVDA 3.58%) It was the best performing stock overall. S&P500 last year. As of February 7th, it is also the best performing stock so far this year.

At first glance, this performance might seem like Nvidia simply continued its momentum from one calendar year to the next, and that’s exactly what happened. However, keep in mind that NVIDIA, like the rest of his S&P 500 index constituents, had a year-to-date performance of his 0% as of the morning of January 1st. NVIDIA is already up another 41.6% in 2023 after soaring his 238.9% in 2023. 2024. In other words, it is up 379.7% since December 31, 2022.

Never before have we seen a company of Nvidia’s size grow so quickly and suddenly in such a memorable year.In fact, NVIDIA is now worth more than Warren Buffett’s company. berkshire hathawaya leader in electric vehicles tesla (TSLA 2.12%)and its fellow semiconductor giants Advanced Micro Devices — Combined.

But for those considering adding Nvidia to their portfolio now, the real question is: Can this growth stock continue its rise, and is it worth buying at today’s levels?

Image source: Getty Images.

Nvidia’s rapid growth is nothing short of historic

The only price movement I can think of that comes close to what we’re seeing with NVIDIA is what Tesla did in 2020. At this time, the company rose 743.4% in his one calendar year, and its market capitalization increased from $75.5 billion to $677.4 billion.

But in terms of value creation, NVIDIA even outperforms Tesla. At the end of 2022, Nvidia’s market capitalization was $359.5 billion. As of February 7th, NVIDIA’s market capitalization was $1.73 trillion. So in just over 13 months, Nvidia increased its market capitalization by $1.37 trillion. That’s roughly double what Tesla achieved during the same period.

It’s no exaggeration to say that the combination of Nvidia’s percentage increase and market cap increase is changing the market. Nvidia currently accounts for his 4.1% of that value. SPDR S&P 500 ETF Trust, an ETF that mirrors the performance of the S&P 500. Also, Invesco QQQ ETF, tracks the performance of the Nasdaq 100. Every time someone buys his $10,000 into an S&P 500 index fund, he is also investing $400 in Nvidia. This is a big deal and is helping to make the market more technology-centric than ever before.

Pitfalls of being a “story stock”

There’s no denying that Nvidia’s business is showing impressive numbers.

NVDA Revenue (TTM) data by YCharts.

Its sales and bottom line growth has been phenomenal. Operating margins are also incredibly high, as Nvidia earns 46 cents in operating profit for every dollar of sales. Investors believe results will improve because customers can’t get enough of Nvidia’s products to realize their artificial intelligence (AI) aspirations.

The danger for Nvidia isn’t how well its business is doing, but the pressure investors are putting on its stock price. The more NVIDIA stock rises before fundamentals catch up with valuation, the greater the risk that NVIDIA will become a “story stock.” His price-to-earnings ratio is 92.6, so some might argue that he’s already a 1x.

Story stocks are companies whose valuation is based entirely on their story: what they will become in the future, rather than what they are today. Tesla achieved this in 2020 with his aforementioned impressive 743% return. However, Tesla has largely lived up to its hype, with its revenue and bottom line growth doing incredibly well. It’s true that business has been slow recently. But overall, it’s been an impressive time for the company Tesla.

However, Tesla stock is actually down more than 20% from its trading price at the end of 2020.

TSLA data by YCharts.

The recent poor performance of Tesla stock is largely due to the fact that investors were willing to pay such a high price for the company before it achieved amazing results. Investors were already pricing in that progress when Tesla did it in his 2021, 2022, and 2023 years. I’m concerned that the same dynamics will play out with his Nvidia.

Tesla is a great example of how a company can perform well at the same time its stock price is low because it was previously too far ahead.

A simple and relatively safe way to invest in Nvidia

The tailwinds for Nvidia and the rest of the semiconductor industry are stronger than ever. It’s just that, at least for now, NVIDIA stock is perfectly priced. But that doesn’t mean it should be avoided completely.

of Vanguard Growth ETF (VUG 1.11%) Perfect for investors who feel like they’re at a disadvantage as advances in AI rapidly roll in. Nvidia makes up 5.3% of his ETF, which is a respectable position, but not enough to sway its performance. “Magnificent Seven” stock — apple, microsoftNvidia, alphabet, Amazon, meta platformTesla — makes up more than 50% of the fund.

Unsurprisingly, the Vanguard Growth ETF is at an all-time high, and its key components are valued much more expensive. But with an expense ratio of just 0.04%, or 4 cents per $100 invested, investors can get exposure to growth stocks in many giant companies, including his Nvidia. This is a good way for him to earn a starter position at Nvidia without committing too much.

Press the Nvidia pause button

At this point, I don’t think investors need to worry about Nvidia stock running away. In many ways, its great benefits lie behind it. If he was planning on nearly quintupling his money in a little over a year, it’s too late to buy Nvidia. Other than getting limited exposure in the Vanguard Growth ETF or similar funds, he thinks the best way to approach Nvidia at this point is to simply hit the pause button and wait.

If the company’s fundamentals improve a year or two from now, but the stock price is depressed, NVIDIA could be a much better value (and probably a stronger buy). But for now, so many expectations have been brought forward that there is too much heat and too much room for stock prices to fall.