Jim Cramer’s record on growth and AI stocks has been stellar this year, with many delivering multibagger gains. That’s partly due to the broader AI rally, but he certainly deserves the credit for pointing out many of the winners. The one stock I will be discussing today is one of these major wins.
And this pick aligns with the broader market: it’s Nvidia (NASDAQ:NVDA | NVDA Price Prediction). You’ve most certainly heard of it, and you likely have it in your portfolio. That doesn’t mean you shouldn’t pursue more angles on it, especially if you’re growing skittish about the valuation of NVDA stock.
Cramer has been overwhelmingly bullish on Nvidia and believes NVDA stock is far from being overvalued.
Cramer sees NVDA stock rallying more
The rally is starting to plateau once more, with Citi downgrading its price target from $210 to $200. Jim Cramer reacted by saying, “I bet we’ll look back on that Citi price target cut and realize it was a mistake, just like the others.”
And again, his bullishness may be proving right as Nvidia has been bouncing back from the decline earlier this month. NVDA stock is still up 28.2% year-to-date and up 64% over the past year. Most of the bearishness now comes not from Nvidia’s valuation, but from potential competitors like Broadcom (NASDAQ:AVGO) and Google (NASDAQ:GOOG, NASDAQ:GOOGL). Yes, Google.
It is one of Nvidia’s biggest customers, but it is now increasingly relying on its own custom chips to avoid paying a premium for Nvidia’s chips.
On the other hand, Broadcom is signing new customers for its chip and is racing to the $2 trillion market cap. AVGO stock is up 21.2% in just the past five days.
Per Cramer (on Mad Money’s show on September 8), “The good news for Nvidia is that right now, there’s no clear winner. Companies that don’t spend as much on Nvidia chips as others are going to be perceived as falling behind.” He used Amazon (NASDAQ:AMZN) as an example, saying the company “tried to develop its own chips” and is now “seen by Wall Street as being too cheap to win.”
Cramer added, “As long as there’s no winner, everybody’s got to pay up for Nvidia’s hardware.”
Nvidia vs Broadcom. Who does Cramer see winning?
Cramer sees Nvidia maintaining its dominant position over Broadcom in the AI chip competition, despite Broadcom’s recent $10 billion mystery customer deal (widely speculated to be OpenAI).
Cramer concedes that Broadcom has gained significant investor attention, but he doesn’t view it as a superior offering to Nvidia. As he recently stated: “I don’t think that that offering is superior. But I do think that Broadcom’s stock is up in large part because people feel they can rival Nvidia”.
Again, on September 8, Cramer said, “…Broadcom is now a factor, taking share from Nvidia, maybe big share,” adding, “Broadcom is the biggest position for my charitable trust… It’s a fantastic story of private-label chips. However, I got real bad news for those who are trading [but] not owning Nvidia.”
According to Cramer, “Nvidia is so much better than any other company… Why not own both?”
It’s clear Cramer views this AI chip “horse race” as a rising-tide-lifts-all-boats scenario, with Nvidia maintaining superior performance metrics while both companies benefit from the AI boom.
Should you buy NVDA stock now?
I agree with Cramer that Nvidia remains a buy hand-over-fist if you are holding for the long run. No other chip company can match its growth and pricing power, and its potential remains massive.
However, bears also have a point that Nvidia could face competitive pressures. Competitors don’t have to take away big market share from Nvidia, but if they can present almost as good alternatives at a significantly lower price point, Nvidia may have to lower prices to retain its customers.
Still, I don’t think that’ll be enough to crush NVDA stock, unless AI spending stalls. Hyperscalers are willing to spend hundreds of billions, and their CEOs have implied they’ll only be increasing their AI CapEx. Much of this will find its way into Nvidia’s income statement, and it could be years until competitors can meaningfully dent growth.
NVDA stock trades at just 38 times forward earnings, whereas AVGO trades at nearly 50 times forward earnings with lower growth and margins. Broadcom is yet to offer a better product.
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