Demand Is "Crazy" for This Spectacular New AI Chip. Should You Buy Nvidia Stock Now Before It Launches?

Artificial intelligence (AI) has the power to transform society and revolutionize the economy, at least according to its evangelists. Whether it lives up to its full potential is yet to be seen, but the technology's impact is already being felt, and with firms like PwC -- one of the "big four" accountants -- claiming the technology could add $15.7 trillion to the global economy by 2030, its revolutionary power looks to be more than just hype.

Shares of Nvidia (NASDAQ: NVDA), the de facto leader of AI, are back trading at all-time highs. And with good reason -- the company's chips are the lynchpin of the industry. Without them, the data-hungry AI models would not be able to run, or at least their power would be greatly diminished. Thus far, no one has been able to match Nvidia's chips in power or efficiency and it may be a while before they do.

Nvidia's newest line of chips, Grace Blackwell, is set to begin rolling out soon. Nvidia's own CEO, Jensen Huang, described demand for the chips as "insane" while the CEO of Foxconn, one of the world's chief semiconductor manufacturing partners, called it "crazy." With the rollout imminent, is now the time to buy?

Nvidia hit some bumps in the road, but things look to be back on track

In an effort to maintain the near stranglehold Nvidia has on the AI chip market, the company has committed itself to a yearly update cadence for its chip architecture, an incredibly ambitious pace goal. Each iteration is much more powerful than the last. The company claims the new Blackwell will be at least 400% as powerful as Hopper. This pace, if the company can keep it up, will work as a sort of innovation moat: a defense that competitors like AMD will struggle to overcome as they play catch-up with only about half the research and development budget of Nvidia.

It's a tall order, however, and Nvidia already slipped up. Blackwell was originally set to already be hitting the market by now, but an issue was discovered in the manufacturing process and Nvidia announced its release would be delayed. Luckily, the flaw had to do with the fabrication process rather than the chips themselves or their functioning, but it still was not a good look for the company.

Any fears of a major snafu, however, were put to bed fairly quickly: Blackwell will begin rolling out soon. The delay will only amount to six weeks or so and any loss in the short term is more than made up for by the still strong demand for Hopper chips. It should make you pause, however. Is this update cadence really sustainable over the long term? It's important to maintain some healthy skepticism. That being said, Nvidia handled the situation well and the company looks to be moving forward, full steam ahead.

Blackwell will be big business, but keep an eye on valuation

Nvidia is partnering with Foxconn to build a new production facility in Mexico dedicated solely to producing Blackwell chips. Once complete, it will be the largest in the world. It's a very smart move as it diversifies Nvidia's production away from Taiwan and the geopolitical concerns of the region. And, of course, it will greatly boost manufacturing capacity for the chips.

That's great news because according to management, Nvidia is already sold out of Blackwell for a whole year. Its production can't keep up with the incredible demand for the new chip. That's certainly a good position to be in.

Given the advanced sales, investors seem to have found a renewed faith in the company and its stock is trading as high as it's been. I think it could still get a boost once deliveries of Blackwell are actually made. However, proceed with caution. If you are retirement planning or otherwise have a shorter investing time horizon, I suggest holding off at the moment. While Nvidia seems to be doing everything right, its valuation is still quite high with a forward price-to-earnings ratio (P/E) of 46. That's high even for tech, as you can see below.

NVDA PE Ratio (Forward) data by YCharts

Should you invest $1,000 in Nvidia right now?

Before you buy stock in Nvidia, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $839,122!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of October 14, 2024

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, and Nvidia. The Motley Fool has a disclosure policy.