Nvidia (NASDAQ:NVDA) is one of the S&P 500 The index's top performers are on track for gains of nearly 180% so far this year. The stock even reached its highest level ever in the last few days. This isn't surprising considering Nvidia's dominant position in the high-growth artificial intelligence (AI) chip market. Nvidia's graphics processing units (GPUs) are the fastest on the market, and the company is flocking to customers for those chips as well as a wide range of other AI products and services.

All of this has led to incredible profit growth for Nvidia. The company reported triple-digit sales and profit growth quarter after quarter. And it looks like this will continue, considering there's a major product launch on the horizon and demand for this and other Nvidia products is outsized.

Does this earnings momentum and future potential mean you should buy Nvidia at this high – or is it time to approach this top AI player with caution? Let's find out.

The go-to tool for AI

First, a little background information about Nvidia. The company has gradually increased its profits over time by first focusing on the video game market and then expanding its reach to other industries. The AI ​​boom helped profits really take off, as Nvidia's GPUs emerged as the “go-to” tool for important tasks like training and inferring models.

As a result, Nvidia's most recent quarterly revenue exceeded the company's annual revenue as recently as fiscal 2023. And last quarter, Nvidia reported record revenue of $30 billion, with 87% of that coming from its data center business. (The data center includes Nvidia's AI activities.)

Looking ahead, there is great potential for further growth and this is due to an impending launch as well as Nvidia's continued focus on innovation. The company has developed a new architecture called Blackwell along with its most powerful chip ever and five other groundbreaking innovations. The company plans to ramp up production in the fourth quarter and expects to generate “multi-billions of dollars” in revenue during that period.

Nvidia has reason to be so optimistic because demand for Blackwell has outpaced supply, even though the company is working day and night to keep up. And the tech giant expects this trend to continue next year. At the same time, demand for earlier architecture, Hopper, also remains strong. This should lead to solid revenue growth in the coming quarters.

Nvidia's annual innovation

And this should extend well beyond the introduction of the new Blackwell architecture, thanks to Nvidia's commitment to updating its chips annually. If Nvidia follows this plan, it suggests that the company is not in a period of weakness and will instead continue to build on its strengths before rivals have time to catch up.

The story continues

Of course, there's always the possibility that a new player will find another way to advance AI tasks – and that could threaten Nvidia's dominance. For example, Cerebras Systems, a company planning an IPO, has launched technology that could compete with Nvidia's GPUs. But even if this and other small companies have a promising product, destroying Nvidia's leadership position won't be easy. Nvidia has spent years earning its customers' trust by delivering high-performing products – so they may not easily switch to a younger competitor with a shorter track record.

Should you buy Nvidia?

Now let's get back to our question. Should you buy Nvidia at its highest price or approach the stock with caution? I prefer buying at high prices for several reasons. First, while Nvidia may have hit a record high, the stock is still reasonably valued given the company's track record and long-term prospects. These are 48x forward earnings estimates.

Second, since we are looking at this investment from a long-term perspective, that means we will be holding on to it for at least five years (and possibly much longer). And during this period, it is very likely that Nvidia stock will rise due to demand for its products, its innovations, and overall growth in the AI ​​market.

So I don't think Nvidia has reached its full potential here at this record level. And that means there's reason to be bullish on this top AI player and buy and hold him for the long term.

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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in Nvidia and recommends it. The Motley Fool has a disclosure policy.

Nvidia shares: Buy at the highest price? was originally published by The Motley Fool