Nvidia (NASDAQ: NVDA) shares are up 2,712% in five years, 31,141% in 10 years and a staggering 366,732% since its IPO in 1999. This shows how enriching long-term stock investing can be.

It also shows how the chips – no pun intended – are stacked in favor of foolish investors. I can only lose 100% of my stock investment (unless I buy on margin), but the potential gains are theoretically unlimited.

One number that really gets me thinking is that Nvidia’s market capitalization has increased by a staggering $3.2 trillion in just two years. Just to be clear, that’s trillions!

Nvidia is already a hair’s breadth away from being overtaken Apple become the most valuable company in the world again. That’s why I’m starting to wonder whether it would be completely crazy for me to buy shares of the company today.

The bull case

Nvidia is the undisputed leader in artificial intelligence (AI) chips. But whether the company’s profits will continue to skyrocket depends on the extraordinary capital outlays of vast cloud service providers. The most significant are Amazon Web Services (AWS), Microsoft Azure i Alphabetin the Google cloud.

Other tech companies looking to buy Nvidia chips include: Metaplatforms (for large-language open source Llama models) i Tesla (for initiatives regarding autonomous vehicles and humanoid robots).

The great news for Nvidia investors is that AI spending shows no signs of slowing down. Here’s a selection of the latest quotes that could crush Nvidia’s bulls.

• Semiconductor from Taiwan General Manager (TSMC) CC Wei: “We continue to see extremely strong demand for AI from our customers in the second half of 2024” TSMC produces Nvidia’s AI chips.
• Meta CEO Mark Zuckerberg: “It’s hard to predict how [AI] will be a trend for many generations in the future…But at this moment, I’d rather risk construction capabilities before they are needed, not too late”
• Nvidia CEO Jensen Huang: “The demand for Blackwell [Nvidia’s newest AI chips] it’s crazy… Everyone wants to have as much as possible and everyone wants to be the first”

The bear case

I’d say the biggest risk is an unexpected slowdown in AI spending due to disappointing returns on investment in the technology. Artificial intelligence has the potential to disrupt many areas, but it will not change the fundamental reality of business (companies must monetize their investments to deliver shareholder value).

The slowdown would have a disproportionate impact on Nvidia because most of its sales come from a tiny group of companies. The company’s four largest clients currently generate over 40% of revenues.

This risk is heightened by the stock’s sky-high price-to-sales (P/S) ratio of 37.

Pound cost averaging

I don’t think investing in Nvidia today would be completely crazy on my part, assuming I looked at it long enough. I would do this with caution, however, given the high valuation. Even the best companies in the world can make penniless investments if they are bought at the wrong price.

Impulsive behavior, especially FOMO (fear of missing out), is an investor’s worst enemy. As Warren Buffett said: “The stock market is a tool for transferring money from the impatient to the patient“

Nvidia is a volatile stock that could drop more than 50% in a matter of months. So, if I wanted to invest, I would consider a pound cost averaging strategy.

So I wouldn’t invest a lump sum. Instead, I would take advantage of share price declines to build my position over time.