Nvidia (NASDAQ: NVDA) stock is constantly yo-yoing. Shares in the chipmaker have been on a rollercoaster ride this year.
Despite an impressive 157.5% year-to-date growth, that doesn't paint the full picture. Meanwhile, its share price has experienced wild peaks and valleys. For example, if you look at the last month, the stock is down 3.3%. However, it increased by 6% last week.
But with it gaining momentum, would now be a good time for me to consider adding an artificial intelligence (AI) player to my portfolio? Let's check.
Amazing climb
Nvidia's rise over the past few years has been phenomenal. From being a largely unknown business a few years ago, the chip maker is now one of the most talked about stocks out there. In all fairness, a 2,791.4% increase over five years would have that effect.
Naturally, its rise to popularity has garnered a lot of attention. And while that may seem beneficial to long-term shareholders, it also comes with risk. The first is that there is ongoing talk of a bubble in the AI industry.
People are buying into the AI hype. And with the predicted growth of the space, it's easy to see why. However, some believe that investors snap up stocks only out of FOMO (fear of missing out). While that can boost a stock's price when times are good, it also creates the potential for its price to fall when growth slows.
Too expensive?
I'm not sure I want to take that risk. I'm not comfortable with my stock experiencing big price swings as often as Nvidia does. But to try to figure out if it's really a stock to add to my holdings today, I want to look at its valuation.
Nvidia trades at a price-to-earnings (P/E) ratio of 58.3. I S&P 500 average is 23. So, while tech stocks tend to trade at a lower price, that still looks overpriced in my eyes. Its forward IP/E is 43.5. So, while that makes for a much better read, I still think that's too high a price.
Similarly, the stock looks overvalued when we examine its price-to-sales (P/S) ratio. It currently stands at 30.4. In context, the P/S ratio of the remaining 'Magnificent Seven' is 8.5.
That said, Nvidia looks like a stock to avoid, even after its share price has grown strongly in recent days.
More to come?
But then again, what will you do if the business continues its amazing performance and can't keep going up?
In several consecutive quarters the company has exceeded analysts' expectations. Despite its high valuation, if it continues this upward trend, there is nothing to suggest that the stock will continue to rise.
Its latest set of results came out in August. During that time, revenue grew by 122% compared to last year.
Not me
That said, Nvidia is a stock I'm staying away from for now. The threat of an AI bubble scares me. In addition, the stock looks incredibly expensive.
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