The S&P/ASX 200 Index (ASX: XJO) is back on form on Thursday and pushing higher. In afternoon trade, the benchmark index is up 0.45% to 7,750.1 points.

Four ASX shares that have failed to follow the market higher today are listed below. Here’s why they are falling:

ASX Ltd (ASX: ASX)

The ASX share price is down over 8% to $57.98. Investors have been hitting the sell button today after the stock exchange operator held its investor forum. At the event, the company provided the market with guidance for cost growth in FY 2025. It is expecting its total expense growth rate to be between 6% and 9% for the year. This is on top of its expected increase of 15% in FY 2024. Management advised that next year’s expense growth rate is primarily being driven by ongoing technology related investment. This includes software licensing, equipment costs, and depreciation and amortisation.

Brazilian Rare Earths Ltd (ASX: BRE)

The Brazilian Rare Earths share price is down almost 11% to $3.26. This has been driven by the completion of the company’s institutional placement this morning. Brazilian Rare Earths advised that it has received firm commitments for a placement of 24.24 million of new shares at a price of $3.30 per share. This will raise a total of A$80 million before costs. Proceeds from the placement will be used to accelerate exploration and development at the Monte Alto, Sulista and Pelé rare earth projects. This includes exploration drilling, feasibility studies, permitting, and for general working capital and corporate purposes.

Liontown Resources Ltd (ASX: LTR)

The Liontown Resources share price is down 4% to $1.09. This is despite there being no news out of the lithium developer today. However, it is worth noting that the majority of ASX lithium stocks are tumbling after a lacklustre night for their peers on Wall Street. Investors continue to sell down lithium shares on concerns over a forecast supply surplus.

Sigma Healthcare Ltd (ASX: SIG)

The Sigma Healthcare share price is down 6% to $1.13. This follows news that the ACCC has raised doubts over the company’s proposed merger with Chemist Warehouse. The ACCC stated: “We have identified a range of preliminary competition concerns, including at the retail level and as a result of the proposed integration of the merged firm across the wholesale and retail level. We want to hear from interested parties, including rival pharmacies as we continue this review.”

The post Why ASX, Brazilian Rare Earths, Liontown, and Sigma shares are sinking today appeared first on The Motley Fool Australia.

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• Here are the top 10 ASX 200 shares today
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• These are the 10 most shorted ASX shares

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

It’s a banner day for the shares of a certain Aussie A2 Milk Co Ltd (ASX: A2M) rival today.

While A2 Milk shares are up a healthy 1.9% in early afternoon trade on Thursday, shares in this ASX infant formula company just surged 20.8% to trade for 14.5 cents apiece.

After some likely bargain hunting, shares are up 18.8% at the time of writing.

For some context, the All Ordinaries Index (ASX: XAO) is up 0.6% at this same time.

Any guesses?

If you said Bubs Australia Ltd (ASX: BUB), give yourself a virtual gold star.

Here’s what’s grabbed ASX investor interest today.

Bubs gains leave A2 Milk shares wanting today

The Bubs share price is racing ahead of the benchmark and A2 Milk shares after the company announced that its weekly scan revenues in the United States have topped US$1 million a week, with more than 24,000 tins sold.

That’s up 25% from the third quarter’s average weekly scan revenue of US$750,000.

Investor exuberance also appears to have been roused by the company reporting it moved from number six to the number one best-selling infant formula product on Amazon USA in May 2024.

Bubs also reported on ongoing progress relating to the Food and Drug Administration’s permanent access pathway and clinical trial. As at 7 June, Bubs had more than 300 infant enrolments, representing 75% of its target.

And the ASX infant formula company said it has commenced the roll-out of new label tins and sizes for the US market.

Commenting on the results seeing the Bubs share price leaving A2 Milk shares far behind today, Bubs CEO Reg Weine said, “We are continuing to see exceptionally strong demand for our products in the USA, and we have now reached a new weekly scan sales record in the USA with revenue exceeding US$1 million.”

Atop the strong online sales growth via Amazon, Weine said, “Pleasingly we are seeing sustained demand for our products right across the USA, from more than 5,800 bricks and mortar retail stores stocking Bubs.”

Looking ahead, Weine added:

We have recently increased our target inventory levels in the US to meet the rise in demand and following the stock shortages which occurred in late 2023 and believe this strong and sustained consumer driven demand will provide a strong tailwind for growth in FY 2025.

Closer to home and addressing a potentially even larger market, Weine noted, “Our China business has now rebounded.”

How have the two ASX dairy stocks been tracking?

With today’s intraday gains factored in, the Bubs share price is up 8% so far in 2024.

A2 Milk shares have performed far better, rocketing an eye-watering 65% year to date.

The post Guess which A2 Milk rival’s shares just rocketed 21% on US news! appeared first on The Motley Fool Australia.

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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Treasury Wine Estates Ltd (ASX: TWE) share price is pushing higher on Thursday.

At the time of writing, the wine giant’s shares are up over 0.5% to $12.01.

Why is the Treasury Wine share price lifting?

As well as getting a boost from a rebounding share market, there has been some news out of the company that may have gone down well with investors.

According to the release, Treasury Wine is integrating its Global Revenue Growth (GRG) function into its Treasury Premium Brands (TPB) Division.

Management notes that this is a move to unlock growth opportunities for its priority premium brands, strengthen innovation, deepen engagement with consumers and customer partners, and increase operating efficiencies within the Premium business.

GRG was established last year under the leadership of Angus Lilley, who is the company’s global chief revenue growth officer. It is responsible for driving enterprise-wide revenue opportunities, including growth plans for current and future global brands, enterprise-wide innovation development, and enhancing consumer understanding across Treasury Wine.

Treasury Wine’s CEO, Tim Ford, believes that bringing the GRG team together with TPB will unlock future opportunities for the strong consumer brands within the Premium business. He commented:

When you consider our Premium portfolio, this is a unique offering with an unrivalled global footprint and brands that resonate strongly with consumers. Integrating our GRG capabilities within TPB, will enhance our ability to strengthen these brands, foster cutting-edge innovation and deepen our engagement with consumers and customer partners.

As part of the change, Peter Neilson, who is managing director of TPB, will leave Treasury Wine after 12 years with the business to pursue new career opportunities. Angus Lilley will assume the position of managing director of TPB. Ford adds:

We thank Peter for his significant contributions made to TWE during his time. His focused leadership has resulted in a robust portfolio of brands and strong market positions for TWE, and the TPB team to build on.

Should you invest?

Analysts at Goldman Sachs think the Treasury Wine share price is good value at current levels.

Last week, the broker reaffirmed its buy rating and $13.40 price target on the company’s shares. It said:

Our Buy rating of TWE is premised on accelerating double-digit EPS growth in FY24-26e driven by 1) continued global expansion of Penfolds especially post the removal of China import tariffs on Australian wine; our recent channel checks suggest positive reception to the returning Australian sourced Penfolds and we expect 50pct pre-tariff recovery by 2027; and 2) #1 luxury wine company in the US with recent acquisitions of Frank Family Vineyards and DAOU which have been growth and margin accretive, combined with a stable portfolio of Premium Brands. TWE is trading modestly below 5-year P/E average.

The post What is boosting the Treasury Wine share price on Thursday? appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has positions in Treasury Wine Estates. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has recommended Treasury Wine Estates. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Sigma Healthcare Ltd (ASX: SIG) share price has plunged more than 6% in morning trade on Thursday following news that the Australian Competition and Consumer Commission (ACCC) has raised concerns over its proposed merger with Chemist Warehouse.

Sigma’s planned merger with the chemist giant — to be structured as a reverse takeover — has been the subject of ongoing debate since it was announced in December last year.

The Sigma share price has rallied some 50% since then, even with a pullback over the last three months. Here are the details of the ACCC’s response and what it means for investors.

Sigma Healthcare share price slides as ACCC speaks

Today, the ACCC announced its “preliminary concerns” over the proposed transaction. Investors have reacted swiftly, sending the Sigma share price down sharply in early trade.

According to ACCC commissioner Stephen Ridgeway, the merger represents a major structural change for the pharmacy sector.

He noted the competitive threat to independent pharmacies that might be caused by “the largest pharmacy chain by revenue merging with a key wholesaler”.

We have identified a range of preliminary competition concerns, including at the retail level and as a result of the proposed integration of the merged firm across the wholesale and retail level. We want to hear from interested parties, including rival pharmacies as we continue this review.

The ACCC’s other primary concern was that the merged entity would become “uniquely vertically integrated”. That means the new entity would own its entire supply chain.

This could potentially raise barriers for rivals entering or expanding in the market, leading to higher prices and reduced service quality for consumers.

Even still, the ACCC said its focus was on the acquisition’s impact on competition rather than the pros or cons of different business models.

“The key issue is whether or not the proposed acquisition weakens competition in the supply of pharmaceutical products,” the ACCC said.

What this means for the Sigma share price we will have to wait and see.

Details of Sigma and Chemist Warehouse merger

Sigma Healthcare is one of the largest wholesalers of prescription medicines in Australia. It also operates as a franchisor of pharmacies. Brands on its books include Amcal +, Discount Drug Stores, PharmaSave, and Guardian.

Chemist Warehouse, on the other hand, is a franchisor and wholesaler.

News of the deal sent the Sigma share price soaring last year.

The proposed acquisition would see Chemist Warehouse shareholders hold a majority 85.75% stake in the newly-listed ASX entity. Sigma shareholders would hold the remaining 14.25%.

The ACCC has not yet concluded the potential competitive impact of the merger. But it has called for submissions from interested parties by June 27 to gather further insights.

The Sigma share price is up nearly 13% this year to date, and has climbed 37% into the green the past 12 months. It reached a 52-week closing high of $1.31 in April.

The post Sigma share price dives 6% on Chemist Warehouse merger hurdle appeared first on The Motley Fool Australia.

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• Here are the top 10 ASX 200 shares today

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The S&P/ASX 200 Index (ASX: XJO) is off to the races today.

In morning trade on Thursday, the benchmark Aussie index is up 0.7% at 7,772.1 points.

That sees the ASX 200 up 0.9% so far in June, despite the past two days of losses.

Australian shares are following in the footsteps of their US counterparts, with the S&P 500 Index (XSP: .INX) closing up 0.9% overnight at 5,421 points. That marked yet another new all-time for the S&P 500 as the US equity bull market entered its 20th month.

Investor exuberance is running high on the back of some promising US inflation data. This has traders forecasting that we’ll see two interest rate cuts from the US Federal Reserve in 2024. That’s despite the central bank’s own forecast of just one rate cut this year. The Fed now expects more rate cuts for 2025.

Here’s what’s going on.

ASX 200 soars as US inflation slows

First, we turn to the US inflation print that sent the S&P 500 to a new closing high and is seeing the ASX 200 lift off today.

In a promising sign for investors, the US core consumer price index (CPI), which excludes volatile items like food and energy costs, increased by 0.2% in May. That puts US CPI up 3.4% year on year, the lowest inflationary print in three years.

“The most recent inflation readings have been more favourable than earlier in the year,” Fed chair Jerome Powell said. Adding that “there has been modest further progress toward our inflation objective.”

Though that wasn’t enough to move the interest rate needle.

Federal Reserve holds interest rates steady

If the Fed had lowered interest rates, we’d likely be seeing an even bigger rally on the ASX 200 today.

But, in a widely anticipated move, Federal Open Market Committee (FOMC) members were unanimous in their decision to hold the official US interest rate in the 20-year high range of 5.25% to 5.50%.

“We’ll need to see more good data to bolster our confidence that inflation is moving sustainably toward 2%,” Powell said (quoted by Bloomberg).

According to the Fed, US and ASX 200 investors are now likely to see only one rate cut in 2024, while the central bank now expects to cut rates four times in 2025, up from prior forecasts of three cuts.

“Rate cuts that might have taken place this year take place next year. There are fewer rate cuts in the median this year, but there’s one more next year,” Powell said.

“The evidence is pretty clear that policy is restrictive and is having the effects that we would hope for,” he added.

What are the experts saying?

Commenting on the latest US inflation data and interest rate outlook that’s spurring the ASX 200 today, Bloomberg’s Economics team said:

May’s CPI report is encouraging — and the core PCE deflator will likely be even more so. We anticipate a string of similar reports this summer, setting the stage for the Fed to start cutting rates in September.

Jim Bullard, former president of the St Louis Fed, added:

I think this was good news for the committee. They’ve been looking for a softer report, they got it here.

We would need more news going in this direction in order to forge ahead with our easing policy. But it does keep hope alive for those that have been looking for an earlier rate cut.

And Scott Colyer, CEO at Advisors Asset Management, said:

The Fed adjusts their dot plots accordingly, so they change all the time and stock traders know that. It’s clear the Fed really wants to cut rates at least one time this year. And those cuts, even if just once, will still be supportive for stock prices.

With US inflation slowing and significant Fed interest rate easing on the horizon, the ASX 200 could soon be resetting its own 28 March record closing high of 7,896.9 points.

The post Why the ASX 200 is rocketing on the latest US inflation and Fed interest rate news appeared first on The Motley Fool Australia.

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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Vanguard Australian Shares Index ETF (ASX: VAS) is a popular choice for investors, as it gives exposer to numerous ASX blue-chip shares. Some investors may be wondering if it’s a good option for their superannuation fund.

Investors are capable of building their own portfolio of ASX shares, but there may be an attraction for investors who want to buy a readymade portfolio that tracks the S&P/ASX 300 Index (ASX: XKO).

Many people may already invest in ASX shares via an industry superannuation fund (such as AustralianSuper, Australian retirement Trust, REST, and Hostplus) with the Australian shares option, which is likely investing in similar businesses as the VAS ETF.

It may not be easy to invest in the VAS ETF in an industry superannuation fund, so I’ll look at the fund from the perspective of a retiree.

Decent dividend yield

The dividend yield of the VAS ETF is rather high compared to most of the international exchange-traded funds (ETFs). An ETF’s yield is influenced by the yield of the underlying holdings.

The ASX 300 is weighted towards higher-yield stocks like BHP Group Ltd (ASX: BHP) and Westpac Banking Corp (ASX: WBC), so this helps the overall yield of the VAS ETF.

According to Vanguard, the VAS ETF has a dividend yield of 3.7%. The bonus of franking credits boosts the grossed-up dividend yield close to 5%.

That’s a very good yield, in my opinion, considering the adequate level of diversification that the fund can provide. It does have a large weighting to ASX bank shares and ASX mining shares, but the fund’s dividend yield wouldn’t be as high if other industries had bigger allocations within the portfolio.

For investors just focused on the passive income, I believe VAS ETF is a solid option for a superannuation fund, though there are ASX dividend shares out there which have higher yields.

Total returns

For me, what the Vanguard Australian Shares Index ETF lacks is good capital growth potential. The VAS ETF unit price is almost exactly where it was three years ago.

Indeed, in the ten years to April 2024, the fund only saw capital growth of an average of 3.2% per annum with total returns of 7.7% per annum. Large banks and miners aren’t known for consistently strong earnings growth, nor are they retaining much profit each year to unlock more growth.

If investors are looking for decent dividends and a small amount of capital growth over time, then the VAS ETF seems to tick that box.

However, there could be an opportunity cost of missing out on other, better-performing investments.

For starters, the Vanguard MSCI Index International Shares ETF (ASX: VGS) could be a good place to allocate funds. It tracks the global share market and owns names like Microsoft, Apple, Nvidia, and Alphabet (Google).

Since its inception in November 2014, the VGS ETF has delivered an average annual return of 12.7%, thanks to a significant majority of the returns being capital growth. Of course, past performance is not a reliable indicator of future performance.

With a theoretical annual return of, say, 12% per annum, investors would be able to sell 5% of the fund’s value (creating a 5% ‘yield’), and it would see capital growth of 7%.

While I’d be comfortable owning some VAS ETF units in my superannuation fund, I’d choose to invest most of my money in assets that have a better chance of delivering greater returns, like globally focused ETFs.

The post Should the Vanguard Australian Shares Index ETF (VAS) be the first choice for your superannuation fund? appeared first on The Motley Fool Australia.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Apple, Microsoft, and Nvidia. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Alphabet, Apple, Microsoft, Nvidia, and Vanguard Msci Index International Shares ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Qantas Airways Ltd (ASX: QAN) share price is grabbing headlines today after the airline announced it purchased its remaining 49% of online travel player TripADeal.

The investment was made on a consideration of $211 million and comes after Qantas purchased its original 51% stake in 2022. This move is set to boost Qantas’s exposure to the $13 billion online holiday packages market, the announcement says.

Qantas shares opened the session on Thursday at $6.14 apiece and are now trading almost 1% higher at the time of writing. This comes after a 14% rally this year to date. Here is the rundown.

Qantas share price in focus

TripADeal is a Byron Bay-based online travel company. Qantas says the acquisition aims to provide cost synergies and enhance the experience for Qantas Frequent Flyers. Cost synergies occur when two businesses with very similar operating lines save on running costs when they combine interests.

The acquiring company (in this case Qantas) can sell more products to the selling company’s customers at a cheaper cost. It can also use the selling company’s (in this case, TripADeal) technology to grow its network – again, at a cheaper cost.

With the full stake in TripADeal, Qantas anticipates annual synergies of at least $50 million. Qantas Points would be redeemable on various holiday packages, ranging from “African safaris” to “European getaways”, the company said.

Qantas Loyalty CEO Andrew Glance said the partnership “turbocharged” TripADeal’s value to customers.

TripADeal has been building on-trend and well-priced holiday packages for over a decade and has delighted millions of holidaymakers in the process. This success has only been turbocharged by the Qantas partnership, and the opportunity for our members to earn and use their points.

If only these points were redeemable to increase the Qantas share price as well.

What does this mean for Qantas investors?

Under the new terms, TripADeal will continue operating independently, expanding its offerings and maintaining partnerships, including with Qantas and Jetstar.

TripADeal founders Norm Black and Richard Johnston will step down, with Matt Wolfenden taking over as CEO.

“We have worked hard to build and grow TripADeal from the ground up and know Qantas will take it into a new era of success,” the pair said in a statement.

The deal could be a growth lever for the business, in my view. TripADeal’s bookings have surpassed $450 million in the last 12 months, doubling the pre-COVID level, the company says.

This aligns with Qantas’s strategy to boost its loyalty program, aiming for underlying earnings before interest and tax (EBIT) of $500-$525 million in FY 2024 and at least 10% growth in FY 2025.

Glance added, “With TripADeal bookings growing at 70% over the last year and more opportunities to strengthen the offering and realise further synergies, this deal is great news for our customers and the Loyalty business.”

Qantas share price takeaway

The Qantas share price has lifted more than 14% into the green this year to date.

This comes after a difficult 2022–2023 period, where shares traded as low as $4.74 in October last year. Currently, Qantas’s price-to-earnings ratio (P/E) ratio is 6.7, below many of its regional peers.

The post Qantas share price lifts after nabbing remaining TripADeal stake appeared first on The Motley Fool Australia.

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Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Shares of Apple (NASDAQ: AAPL) turned sharply higher on Wednesday, continuing Tuesday’s impressive climb. The stock added as much as 5.3% in early trading. As of 1:44 p.m. ET today, the stock was still up 4.9%.

Wall Street continues to weigh in on the iPhone maker’s big artificial intelligence (AI) reveal as a part of Apple’s Worldwide Developers Conference (WWDC). 

Wall Street is decidedly bullish

Apple’s announcement about its plans for generative AI has been well received by investors, driving the stock higher on Tuesday. As Wall Street continued to digest the news, analysts have been weighing in on what it means for the company and its shareholders. After several upgrades and a number of price-target increases yesterday, the bullish commentary continued today.

Bank of America analyst Wamsi Mohan joined the chorus, suggesting that Apple’s installed base of more than 2.2 billion devices provides insight into future demand. The analyst suggests that the debut of Apple Intelligence — the company’s suite of AI-powered features and applications — will be the catalyst that sparks the next big upgrade cycle.

Mohan sees the replacement cycle for Apple products shrinking as its AI-related improvements give consumers a reason to replace their existing devices. And he believes Wall Street’s current outlook is far too low.

I think he is on the right track. Estimates suggest that there are roughly 1.5 billion iPhones currently in use, and about 270 million of them haven’t been upgraded in four years, according to Wedbush analyst Dan Ives.

The advent of Apple Intelligence and the buildout of generative AI-powered apps will likely inspire users to upgrade to the iPhone 16, which is expected to debut in the fall. This could lead to a so-called supercycle, with many iPhone owners trading up to the newest device.

Some investors saw the economic challenges as a reason to abandon Apple stock, but the company has a long track record of defying detractors. The stock currently trades at 33 times earnings, which is a slight premium compared to a multiple of 28 for the S&P 500. But over the past decade, Apple stock has gained 823%, more than four times the 180% gains of the S&P — which illustrates why it deserves a premium. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Why Apple stock popped (again) Wednesday morning appeared first on The Motley Fool Australia.

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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Danny Vena has positions in Apple. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Apple and Bank of America. The Motley Fool Australia has recommended Apple. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

With shares up by an eyewatering 25,000% over the last 10 years, it’s no surprise that Nvidia (NASDAQ: NVDA) relies on stock splits to keep its equity price manageable for smaller investors who may not have access to fractional shares. The most recent of these went into effect on June 7 and gave investors 10 shares of Nvidia for each one they previously owned — bringing its stock price to around $126 at the time of writing.

The stock split did nothing to change Nvidia’s $3 trillion market cap, which represents the value of all its shares combined. However, some market participants are hopeful that the lower share price could make Nvidia’s equity more liquid and help it maintain its explosive bull run. Let’s dig deeper to decide if this technology giant is still a buy.

What is Nvidia’s bull thesis?

If the generative artificial intelligence (AI) industry can be likened to the California gold rush, Nvidia would be selling the picks and shovels every miner needs to dig for gold. The company’s industry-leading graphics processing units (GPUs) are crucial for running and training complex AI algorithms. And this has led to explosive growth and margins.

Nvidia’s first-quarter revenue increased 262% year over year to $26 billion, driven by sales of data center chips, such as the H100. And net income jumped 628% to $14.88 billion.

Considering this elevated growth rate, Nvidia’s stock is still reasonably valued at a forward price-to-earnings (P/E) ratio of around 47. For comparison, rival chipmaker Advanced Micro Devices has the same forward P/E despite only growing sales by 2% in its first quarter. That said, Nvidia’s stock might not be as cheap as it looks on the surface.

Nvidia is not as cheap as it looks

Over the next few years, Nvidia will face incredibly challenging comps. After enjoying booming sales over the previous 12 months, it will be difficult for the company to continue growing its revenue relative to extremely high prior-year numbers. And this might be a big reason why the stock’s forward valuation is so low relative to growth.

Demand could become another problem. While Nvidia’s picks-and-shovels take on the AI industry protects it from competition on the consumer side of the industry, it wouldn’t be shielded from an industrywide slowdown, which could occur if its clients aren’t able to generate enough cash flow to justify their spending on Nvidia chips.

The long-term prospects of AI look undeniably bright. But there could be many ups and downs before it reaches its full potential — just like other major technologies like the internet, electric vehicles, or even blockchain.

Buy with caution

For many retail investors, Nvidia’s stock split will be a powerful psychological encouragement to buy the stock. At just $120 per share, the mammoth company now looks relatively small. And those who were previously intimidated by its four-digit stock price may now be encouraged to finally pull the trigger and hit the buy button.

But while Nvidia certainly has a bright future as the AI industry develops, investors who buy the stock now are late to the party. And this brings the risk of being left holding the bag if things go wrong.

Over the next few years, Nvidia will face more difficult comps, which could cause top- and bottom-line growth to slow down, even if the AI industry remains strong. While shares still look capable of outperforming over the long term, investors should remain aware of the significant risks they are taking by buying a company that has already risen so far so fast.

Historically, no stock has grown exponentially forever. And Nvidia will likely face a correction at some point. Be careful out there. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Is Nvidia stock a buy after the 10-for-1 stock split? appeared first on The Motley Fool Australia.

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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Nvidia. The Motley Fool Australia has recommended Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.