Nvidia joined the Dow Jones Industrial Average this week. Is it time to buy?

nvidia (NVDA 1.99%) We achieved many milestones this year. The stock price has surpassed $1,000 and has risen significantly in the past. microsoft Following the world’s second largest company apologize. This is all thanks to Nvidia’s dominance in the high-growth field of artificial intelligence (AI), a market expected to expand from $200 billion today to more than $1 trillion by the end of 2010. Nvidia makes the fastest AI chips that support key AI tasks like model training and inference, as well as a full portfolio of AI products and services, and demand for many of these products has exceeded supply.

All of this has made Nvidia one of the major companies driving today’s economy and has helped its stock soar 173% so far this year. And this has led the tech giant to its latest milestone. Nvidia is scheduled to join the Dow Jones Industrial Average this week. intelThe chipmaker has been struggling in recent years. Does this win mean it’s time to buy Nvidia? Let’s find out.

Image source: Getty Images.

Nvidia’s growth over time

First, we take a quick look at Nvidia’s story so far and where the company fits into the AI ​​picture. Nvidia has grown over time, and it all started with the power of its graphics processing units (GPUs), which are chips with the ability to handle multiple tasks simultaneously. They initially served the video game market, but gradually branched out into other industries, and with the onset of the AI ​​boom, the capabilities of GPUs began to really shine.

As mentioned, Nvidia has expanded to offer a complete stack to its AI customers, making it the “go-to” company for anyone starting an AI project. Nvidia is also working hard to update older products to ensure seamless integration with the latest products. This means that if a customer invests in Nvidia, they know that the products they buy now will no longer be obsolete and that their investment will continue to pay off.

This has helped Nvidia grow revenue by triple digits every quarter, with the most recent quarter hitting a record $30 billion in revenue. That’s more than the company’s annual revenue for the most recent fiscal year 2023. At the same time, Nvidia’s margins have expanded above 70%, and the company expects full-year gross margins to be in the mid-70s.

Based on these results, it is no surprise that the Dow Jones Industrial Average (DJIA) invited Nvidia to join. Launched in the late 1800s, the DJIA today includes 30 of the nation’s largest companies across industries, and the index is often viewed as reflective of the overall stock market and the general economy.

NVIDIA stock split

Members are weighted based on share price, so it’s clear that Nvidia’s 10-for-1 stock split earlier this year lowered its price per share, increasing its chances of entering the index. Otherwise, high prices may have resulted in too large a weighting in the index. The stock split did not change the market value or fundamentally change the company, but the stock price fell to about $120 when the operation was completed.

Nvidia is expected to join the DJIA before trading begins on Friday, November 8.

Will this news make you buy Nvidia? It is true that inclusion in an index may attract some new buyers. For example, a fund tracking the DJIA would need to purchase shares of these new members to ensure they continue to reflect the performance of the DJIA. However, I don’t think it will have much of an impact on Nvidia’s stock performance immediately after entering the index.

And I wouldn’t say that Nvidia’s invitation to join the DJIA itself makes you buy the stock. What makes Nvidia a great investment right now is the company’s explosive growth, wide margins, and high demand for its products and services that will continue that trend. That’s why the stock looks reasonable, even if it’s trading at 47 times earnings estimates.

Joining the DJIA is an acknowledgment of Nvidia’s success thus far, but what we should really pay attention to is Nvidia’s revenue picture and future outlook. today.