3 Amazing Charts That Explain How Nvidia Achieved a $3 Trillion Valuation

nvidia (NVDA -3.22%) It quickly became one of the most valuable stocks in the world. And even with a $3 trillion valuation, it still wouldn’t be surprising to see artificial intelligence (AI) stocks rise much higher in the coming months and years. Nvidia’s success and why it continues to soar higher can be summed up in three incredibly impressive visuals.

Nvidia’s cash flow paves the way for growth opportunities.

Free cash flow is an important metric for technology companies and any business focused on growth. This represents the amount of money a company generates after taking capital expenditures into account. This effectively tells investors how much room the company has to reinvest in its operations. This may include acquiring a company or developing a new product.

NVDA Free Cash Flow (Quarterly) Data from YCharts

Nvidia’s free cash flow has exploded in recent quarters. Previously, the company often had annual cash flow of less than $5 billion. now quarterly, generating approximately $15 billion. This is a huge amount of cash that opens up a lot of opportunities for Nvidia, and could unlock even more growth potential for this already fast-growing business.

growth rate has soared

It hasn’t been that long since Nvidia had sales. decreasing Compared to the previous year. Not only is that no longer an issue, but the biggest question moving forward is how long the company can keep going. triple Its top line; Business was booming, with growth exceeding 200% for several quarters.

NVDA Revenue (Quarterly YoY Growth) data from YCharts

There’s still a lot of demand for AI chatbots, AI models, and all kinds of next-generation technologies that require Nvidia’s chips and products. Even if growth rates inevitably begin to decline, Nvidia’s impressive current growth rate could ensure that the stock’s valuation will remain high for the foreseeable future.

NVIDIA has incredibly high profit margins.

Generating strong top-line growth is important, but what’s even more impressive is that Nvidia is able to do so. increase margins. Currently, the operating profit margin exceeds 50%. This means that for every dollar the company generates, more than 50 cents goes straight to the bottom line. With that kind of growth, it doesn’t matter that the revenue multiple is as high as around 80. Because it can fall quickly.

NVDA Profit Margin (Quarterly) Data from YCharts

Is Nvidia stock still a buy?

Deciding whether to buy Nvidia stock can be a difficult task. On the one hand, you are running an incredibly successful business that is generating fantastic numbers and still has a lot of growth potential. However, you may be concerned that the valuation has become excessive and the bubble in AI is bound to burst, and if that happens, Nvidia’s valuation may plummet.

The worst thing I can see is that investors pay a smaller premium for Nvidia stock and the stock could fall. But in the long term, it’s hard not to like holding on for the long term because the potential of AI is so great, AI will impact so many industries, and Nvidia is the leader in AI chips. Even if growth rates slow and margins decline, they can still be good growth stocks. As long as you are willing to hold on to it for a few years, yes. Nvidia could be a solid stock to buy right now.