I looked at the opportunity to buy a flea manufacturer Nvidia (Nasdaq: NVDA) for a while but was put off by the price. While Nvidia’s stock has dropped recently, I was getting more warm at the price – and this week saw it moving wildly.
About a fifth cheaper than at the beginning of the year (but more 1,537% Over the past five years!), Nvidia has now reached the kind of point where I would be ready to add it to my Isa?
It may seem that I shouldn’t have a dilemma.
After all, I expected that the stock becomes much cheaper – and the price has now dropped significantly.
But the fact is that value and price are not necessarily the same thing. As the billionaire investor Warren Buffett said, the price is what you pay and the value is what you get.
NVIDIA is now negotiated on a price / profit ratio (P / E) of 37.
But this is based on last year’s income. As an investor, a way that I can aim to create wealth from actions in possession is to seek companies likely to have significant profits (compared to what I pay) in the future.
The main reason why Nvidia’s actions have dropped recently is the fear of the potential impact that American prices can have on its activities. American policy in this area remains clear and changes quickly. But I continue to see a real risk for the income and benefits of NVIDIA sales of the American tariff regime and reprisal movements by other nations.
This could affect income, which means that the P / E potential ratio can be greater than 37.
So, although it may seem that the stock has become cheaper, what happened is that the price has dropped. These two things are not necessarily the same.
Time will tell us. For the moment, however, I see significant risks for Nvidia (as well as other flea manufacturers) of the American tariff policy.
The company also faces other risks, the US government was increasingly closing some growth paths in China. The turbulence of stock market markets has probably made certain large companies reporting or canceling decisions on capital expenditure. This could mean a drop in AI budgets, resulting in a lower demand than previously expected for Nvidia fleas.
I still like Nvidia as a business. It is massively profitable, has a large base of installed users and thanks to a variety of proprietary conceptions, it is able to offer fleas to customers without effective competition.
But a P / E ratio of 37 offers me an insufficient safety margin for my comfort as an investor. Meanwhile, growing risks for the company mean that the P / E potential ratio could actually be higher than that, which means that the current evaluation would be even less attractive to me.