Why I'm Still Holding Nvidia (NVDA) Stock Despite Its Sky-High P/E Ratio

If you don't already own shares of semiconductor giant Nvidia (NASDAQ: NVDA), you probably wish you did. The stock has averaged annual gains of 63% over the past decade and would have turned a single $10,000 investment 15 years ago into $7.5 million (with dividends reinvested) or $6.9 million (without the reinvestment of dividends).

Is it too late to buy the stock now? I don't think it is. I've been a shareholder for only a year or two, and I'm planning to hang on -- despite the stock's having a steep price-to-sales ratio of 17 (as of Aug. 26).

Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »

Once known for its gaming chips, Nvidia has pivoted in a highly profitable way, now focusing on chips for data centers used in artificial intelligence (AI). Indeed, it boasts the dominant AI ecosystem .

It's also helping smaller companies afford AI infrastructure via a new financing platform. And it's broadening the scope of its offerings, such as by adding custom AI processors and partnering with an optical interconnect technology provider.

Nvidia is growing very rapidly -- with plenty of room to grow more

Stocks with lofty valuations can be worrisome but much less so if they're growing briskly. And with Nvidia, "briskly" isn't a strong enough word. The company recently reported a boffo second quarter, with revenue up 106% year over year (that's more than a doubling!) to $96 billion, and revenue from data centers up 117% to $89 billion.

Those numbers reflect the major role data centers play in the business, generating about 93% of total revenue. Another thing to appreciate is that this is a huge business, recently sporting a market capitalization of $5.5 trillion -- and it was still able to more than double its revenue. Also announced recently is a $12.9 billion acquisition of AI specialist Hugging Face.

Anyone worrying that AI has grown too much too fast can be reassured by Nvidia CEO Jensen Huang, who asserted that AI has "reached its inflection point," adding:

It's doing useful work. Its tokens are productive and profitable. Now, compute is revenue... And demand is accelerating. This time last year, one lab alone was driving the build-out; today, we have a golden age of new AI labs and start-ups, multiple frontier labs scaling in parallel, a thriving open-model ecosystem, and physical AI coming online -- with strong momentum across the U.S. and around the world.