Nvidia’s Stock Surge Inches Closer to Amazon’s Valuation

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Just a decade into the new year, Nvidia Corp. (NASDAQ:NVDA) has swiftly climbed back to the forefront of the market, making significant strides after grappling for months to surpass the $500-per-share mark. The top performer in the S&P 500 last year, Nvidia has now surged nearly 9%, propelling its market value to over $1.3 trillion—less than $250 billion away from Amazon.com Inc. (NASDAQ:AMZN), securing its position as the fourth-most valuable company in the benchmark.

Investor enthusiasm for Nvidia remains evident, with the stock continuing to attract bids even after tripling in value throughout 2023. This sustained interest underscores the high demand expectations for Nvidia’s chips, particularly in the realm of artificial intelligence computing. The third-quarter revenue surge of 206% is poised to escalate further, with a projected 232% increase in the fourth quarter, as reported by Bloomberg.

Michael Sansoterra, Chief Investment Officer at Silvant Capital Management, remarked, “This is a very large, fast-growing market, and they’re dominating. You could look forward to 2024 as another solid year of returns for Nvidia.”

Nvidia shares experienced a 2.3% surge in intraday trading on Wednesday, contributing to a three-day advance of 11%. In an interview with JPMorgan analyst Harlan Sur on Tuesday, Nvidia’s Chief Financial Officer Colette Kress reiterated CEO Jensen Huang’s belief that the company can sustain growth through calendar 2025, driven by persistent demand for AI-related products.

The past year posed challenges for Nvidia when the Biden administration imposed tighter restrictions on chip exports to China, jeopardizing a market that accounted for 21% of the chipmaker’s sales in the last fiscal year. In response, Nvidia developed less-capable versions of its graphics chips for PCs and has committed to introducing similar versions for data center use this year.

In a recent announcement, Nvidia introduced three new desktop graphics chips with additional components, enhancing AI utilization on personal computers without relying on remote internet services. The Santa Clara-based company is set to disclose its earnings late next month.

Despite the soaring stock price, Nvidia’s robust profits, projected to reach nearly $28 billion in the current fiscal year, have contributed to a moderated valuation. The stock, now trading at around 27 times projected profits (down from 55 times in May), remains notably higher than the Nasdaq 100 index, priced at about 24 times forward earnings.

Comparing Nvidia’s current price to its historical performance reveals a premium valuation. On a trailing basis, Nvidia is priced at approximately 68 times profit, while the Nasdaq 100 trades at about 33 times.

Shana Sissel, CEO of Banrion Capital Management, expressed confidence in the stock, citing its valuation relative to revenue growth: “I still like the stock. I do think it can keep the momentum up.”

Even Nvidia’s ardent supporters anticipate a deviation from its stellar 2023 performance. The average Wall Street price target hovers around $650, suggesting a 20% gain from current levels—an impressive margin among major U.S. technology companies.

Sissel emphasized the need to reassess expectations, stating, “If our standard for a stock to perform is 200% every year, then we need to recheck our expectations.” Despite this, she believes Nvidia will outperform the broader market in the coming year, reinforcing her view that it remains a stock worth holding.

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