In 2023, the expansion of artificial intelligence (AI) has been nothing short of a wildfire, and it shows no signs of slowing down. AI is reshaping industries and becoming an integral part of our daily lives, with the market predicted to grow twentyfold to $2 trillion by 2030. Amid this surge in AI demand, tech giants are revving up their AI offerings, and one company that’s been leading the pack is Nvidia (NASDAQ:NVDA).
Despite fierce competition in the AI realm, Nvidia, a chip market leader, has not only survived but thrived. Over the last decade, it has delivered an astounding 10,738% return on investment. This year alone, Nvidia’s stock has surged by 179%, outperforming the Nasdaq Composite Index, which posted a 22% gain. But can Nvidia’s stock reach the much-anticipated $1,000 milestone, as some analysts suggest? Let’s take a closer look.
Impressive Growth Trend
Nvidia’s expertise in accelerated computing has propelled it to the top of the AI investment ladder. Their high-end graphics processing units (GPUs) are in high demand across various sectors, including automotive, healthcare, gaming, data centers, and AI applications. In particular, Nvidia’s processors played a crucial role in the success of OpenAI’s ChatGPT and other AI applications. In Q2 fiscal 2024, Nvidia reported a remarkable 101% YoY revenue growth and an astonishing 429% surge in adjusted diluted earnings per share (EPS) to $2.70.
As companies increasingly integrate AI into their products, the demand for Nvidia’s chips continues to rise. The company is working diligently to increase its supply to meet the growing demand for H100 GPUs. Additionally, the data center revenue saw a remarkable 171% increase, while gaming revenue was up by 22% compared to the previous year. The recovery of the personal computer (PC) market, as indicated by Microsoft’s recent quarter, could further boost Nvidia’s gaming revenue in the upcoming quarters.
Nvidia is also actively expanding its horizons, having recently announced a partnership with Anyscale to develop large language models with generative AI. It has also formed strategic alliances with Indian companies to introduce AI into various sectors, including industrial and telecommunications. Furthermore, as self-driving cars become more prevalent, Nvidia’s Drive platform is poised to play a pivotal role.
A Bump in the Road
However, not everything is smooth sailing for Nvidia. The US Commerce Department recently announced its intention to halt the export of advanced AI chips, including those designed by Nvidia, to China. This move aims to restrict China’s access to vital US technologies crucial for military applications. While Nvidia maintains that this decision won’t impact its near-term results, it remains to be seen how the US-China trade tensions might affect its future quarters. In response to this, Citi analysts lowered their sales estimates for Nvidia’s fiscal years 2025 and 2026, along with reducing the stock’s target price.
Still Plenty of Growth Ahead
Despite the challenges, Nvidia is well-positioned for the future. Even though competitors like Advanced Micro Devices (NASDAQ:AMD) plan to launch their own AI accelerators, and other companies intend to develop their AI chips, Nvidia’s dominant position in the chip market remains formidable.
Analysts remain optimistic about Nvidia’s performance in 2023, and they anticipate substantial growth. For Q3, analysts predict a whopping 785.3% growth in earnings to $3.01 per share, and for the full fiscal year 2024, EPS could jump by 289.4% to $9.54 before rising to $14.96 in fiscal 2025. Over the past three quarters, Nvidia has consistently outperformed earnings expectations.
Revenue is also expected to soar, with analysts forecasting a 100.5% increase to $54 billion in fiscal 2024 and a further jump to $79.4 billion in fiscal 2025. For the upcoming Q3, analysts predict a 170% growth in revenue to $16 billion, in line with the company’s own forecast.
What’s the Stock Price Prediction for NVDA?
Nvidia is still a “Strong Buy” in the eyes of analysts. Among the 35 analysts covering the stock, 31 rate it as a “Strong Buy,” 3 as a “Moderate Buy,” and 1 as a “Hold.” Notably, Rosenblatt Securities analyst Han Mosesmann has set a high target price of $1,100, suggesting a potential upside of 170% from the current price levels.
However, considering the prevailing economic conditions and geopolitical tensions, the idea of Nvidia’s stock price doubling to over $1,000 by October 2024 might seem a bit ambitious. On average, the Street’s target price for Nvidia stands at $625.53, implying a more conservative upside potential of 53%.
While the stock may appear pricey, trading at 38 times forward earnings and 19 times forward sales, these valuations seem justified when considering the expected growth in 2024.
The Key Takeaway for Nvidia
In summary, Nvidia’s technological prowess, market presence, track record, resilience, and ongoing innovation in the AI field make it an enticing prospect for investors seeking to tap into AI industry growth. While the idea of hitting $1,100 in the next 12 months might be a stretch, the average expected upside of 53% is still substantial. For investors looking to join Nvidia’s growth journey and seeking an entry point, the stock is currently trading at a discount of 19% below its 52-week high.
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