As if its 171% gain in 2024 wasn't enough, shares of Nvidia (NVDA -6.22%) were already up about 9% by market close on Jan. 6. This was almost eight percentage points more than the S&P 500's year-to-date returns. Such staggering momentum probably has many investors wondering how long the stock can keep rising so rapidly. While there's no certain way to know how high the graphics processing unit (GPU) specialist's stock will go in the coming months, this doesn't stop investors from taking a moment to consider whether the stock looks attractive at its current level. After all, for investors who are considering buying and holding the stock for the long term, the short-term moves in the stock price are largely irrelevant.

So, is Nvidia stock a buy at its current level? Or is the stock's current valuation already pricing in expected business growth?

Soaring sales and profits

One thing is clear: Nvidia's business is firing on all cylinders. Revenue in its most recently reported quarter soared 94% year over year and 17% sequentially to $35.1 billion. This was driven primarily by 112% year-over-year growth in data center revenue, 88% of the quarter's total revenue. Data center revenue, of course, has been benefiting from the seemingly unstoppable demand for computing power to support artificial intelligence (AI) technology.

"The age of AI is in full steam, propelling a global shift to NVIDIA computing," said Nvidia founder and CEO Jensen Huang in the company's fiscal third-quarter earnings call. The tailwinds for the technology are incredible, including enterprises adopting AI in droves to enhance workflows and even countries waking up to the fact that investment in AI is a mission-critical element to domestic technological infrastructure.

This momentum is leading to impressive profitability. Nvidia's net income in the most recent quarter was $19.3 billion, more than double the $9.2 billion it reported in the year-ago quarter.

Finally, this strong growth is creating a fortress of a balance sheet for Nvidia. The company boasts about $38.5 billion in cash, cash equivalents, and marketable securities, even as it ramps up spending on share repurchases. In the trailing nine-month period ended Oct. 27, 2024, it spent $26 billion on share repurchases.

Nvidia investors should tread carefully

But here's where things get a little tricky. The rise in Nvidia's stock has put the company's market capitalization at nearly $3.7 trillion as of this writing. Its profits and cash balance, as impressive as they are in their own right, pale in comparison to this figure. Further, consider how this valuation measures up to Nvidia's trailing-12-month earnings. The company trades at 59 times earnings -- a multiple that prices in continued rapid growth in earnings not just over the next 12 months but for years to come.

Of course, Nvidia will almost certainly continue growing at an impressive pace in 2025. The company's tailwinds are substantial and are unlikely to let up anytime soon. However, investors should keep in mind that the semiconductor industry is cyclical. Even more, it's intensely competitive. Case in point, chipmaker Intel (INTC 0.70%) once enjoyed dominance so great that it was difficult for anyone to imagine the company falling from grace. Yet shares are down 67% over the last five years as Nvidia and other chipmakers outmaneuvered Intel on almost every front. Further, technological change was just too rapid for the company to keep up.

There's always a risk that the same thing could happen to Nvidia in the future. Though given Nvidia's dominance, it's unlikely it will have an Intel-like disastrous streak of poor execution anytime soon. The real risk to investors is likely one that is more subtle. For instance, if Nvidia's growth slows and profit margins narrow, investors could start questioning Nvidia's premium valuation and the stock could sell off sharply. Further, even the slightest hint that enterprise AI spending is close to peaking could cause the stock to take a hit.

With all of this said, it may be worth staying on the sidelines when it comes to Nvidia stock. It's a great business, but a high valuation may have priced in much of the company's future growth.