Is it too late to buy Nvidia stock?

When it comes to stocks that investors seem to be interested in too late, most will probably think Nvidia (NVDA 1.51%). The stock has risen more than 950% since the end of 2022, when it became the dominant company for AI chips. Additionally, its fiscal second-quarter revenue and earnings beat expectations, a result that could keep the semiconductor stock’s valuation in the stratosphere.

However, the growth of the subsector it has driven, AI chips, is massive. Thus, investors should take a closer look at Nvidia to see if they are indeed too late to capitalize on Nvidia’s remaining growth potential.

Nvidia’s phenomenal results

As in previous quarters, Nvidia delivered impressive results for the second quarter of fiscal 2025 (ended July 28). The company continues to benefit from strong demand for its Hopper chip and has begun shipping samples of its highly anticipated Blackwell chip to its customers and partners.

Given this demand, it may not surprise investors that Allied Market Research forecasts a 38% compound annual growth rate (CAGR) for the chip market through 2032. This is well above the 6% CAGR Allied’s forecast for the global semiconductor market through 2031.

Unsurprisingly, Nvidia’s results far exceeded that forecast, as revenue reached $30 billion. That was a 122 percent increase from year-ago levels and significantly above the $28 billion estimated three months ago. Additionally, $26 billion of that revenue came from its data center segment, which includes its AI chips, which grew 154% year-over-year.

Also, net income for the fiscal second quarter was nearly $17 billion, up 168 percent from the same quarter last year, as Nvidia capped growth in cost of revenue and operating expenses. Additionally, the company now anticipates revenue of $32.5 billion for the fiscal third quarter, indicating that its massive growth will continue.

Market reaction

However, despite the strong earnings report, the market reaction is likely to make new investors nervous. The strength of the numbers wasn’t enough to satisfy investors, and the stock fell on the news.

Moreover, even with its huge growth, some of the valuation metrics may make investors reluctant to offer higher shares regardless of the circumstances.

That’s not because of the P/E ratio, which, at 72, is surprisingly low given the stock’s rapid earnings growth. However, its price-to-sales (P/S) ratio of 38 far exceeds other AI chip companies such as AMD at 10 times sales and Qualcomm at a P/S ratio of 5.

The contrast is stronger when comparing price-to-book value ratios. AMD and Qualcomm sell at 4x and 8x book value, respectively. That’s a tiny fraction of Nvidia’s price-to-book ratio of 61! Given such a valuation, one can see why investors may be hesitant to bid Nvidia higher in the short term, despite its incredible performance.

In addition, this has come amid sizeable share buybacks. Nvidia spent $15 billion on share buybacks in the first half of fiscal 2025. The company also pledged another $50 billion in subsequent share buybacks, on top of the $7.5 billion remaining in the authorization previous

Reducing the number of shares outstanding should mitigate the impact of any downward trends in the stock. So the fact that investors turned on the stock despite this upbeat news may speak to how overvalued Nvidia stock has become.

Are investors too late?

Given the state of the stock, investors should assume they’re late, at least for now.

Of course, the 38% CAGR in the AI ​​chip market sets Nvidia up for robust growth for several years to come. If stocks end up in a bear market, investors should start dollar cost averaging.

Unfortunately, at the current price, it comes at a price for perfection, or possibly price beyond perfection when considering the fiscal second quarter earnings report. Finally, it’s pretty hard to justify a price-to-book ratio of 61, even for a “perfect” stock.

With that in mind, investors should keep Nvidia — along with its price-to-book value ratio — on a watch list and hold off on buying until the valuation drops significantly from these lofty levels.