It’s tempting to think that the top-performing investments in the world are the best for me to buy. However, that’s often not true. Take Nvidia (NASDAQ:NVDA) stock, for example; while it has grown 122.5% over the past 12 months, I wonder whether its valuation is sustainable right now.
Past performance is no guarantee of future results. At the point of peak growth rates, investing in a company can become very risky. Therefore, I want to make sure I’m not too late to the party.
Value versus momentum investing
Some of the greatest investors of all time are value investors, Warren Buffett included. The Oracle of Omaha might not be attracted to Nvidia at the current valuation, in my opinion. After all, it has a price-to-earnings (P/E) ratio of nearly 51 and earnings growth that analysts expect to contract from 39% in 2025 to 17.8% in 2026.
Other investors work with momentum. Instead of ‘buy low and sell high’, which is the strategy of value investors, momentum investors ‘buy high and sell higher’. This only really works if a company isn’t near the top of its growth phase, which I think Nvidia could be.
Many of the tech company’s enthusiasts say that peak demand for AI chips is going to continue. However, analysts say otherwise. While AI infrastructures are going to continue to expand, the rate of adoption is tapering off now. Questions are arising about the return on investment of such significant spending on AI data centres.
Worth holding?
I currently don’t own any Nvidia shares, but I wish I’d bought them five years ago. If I had, I’d be sitting on a price growth of 2,315% today.
While its future returns might show some volatility related to slowing growth and overvaluation, I don’t think this is a time to sell if I held any of the shares. It’s just probably not the right time for me to buy. I think it’s wiser for me to wait until a couple of years have passed for the valuation to potentially settle somewhat before I become a shareholder.
By comparing it to Meta and Amazon, I estimate Nvidia should have a P/E ratio of 30 if it’s trading at a fair valuation in 2026. At that ratio, I think I could be getting a long-term bargain.
Based on my research, the company is well-positioned to capitalise on robotics trends in the future too. If Nvidia partners with Tesla on Optimus and other humanoid robots developed by big tech companies, we could see another long bull run, in my opinion.
I’m looking overseas
There are rational concerns at the moment by top investors that the US market is becoming overvalued in general. So, I’m seeking out the hottest growth investments in India, China, and other emerging economies. I’m also looking at shares that might be deeply undervalued.
One company that caught my attention recently is JD.com from China. It’s selling for below its total sales, with a price-to-sales ratio of less than 0.7. Management has outlined that it may repurchase up to $5bn in shares over the next 36 months. Those elements combined are a reason for me to be bullish.
So, Nvidia’s not worth my cash right now, but JD.com just might be. It’s all a matter of valuation.
This post was originally published on Motley Fool
