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Last year marked a breakthrough for artificial intelligence (AI). Some of the top companies in the niche also emerged as the top performers in the stock market, backed up by robust top- and bottom-line growth. And despite ongoing concerns about an “AI bubble,” it seems we're just getting started, with forecasts calling for AI to add more than $15 trillion to the global economy by 2030.
Perhaps the face of the AI revolution is chip designer Nvidia Corp (NVDA), with the shares gaining 238% in 2023. NVDA has continued to lead the market's advance this year, up 159% with the first half of 2024 in the books. Over a five-year time horizon, the stock has surged 2,827%, and recently grabbed headlines for surpassing $3 trillion in market cap.
Most recently, we’ve seen a correction in NVDA stock - down about 12% from highs - which presents an excellent buy-the-dip opportunity.
Sure enough, the dip proved too much for longtime NVDA investor Rep. Nancy Pelosi (D-CA) to resist, with regulatory filings showing that the former Speaker scooped up 10,000 shares in late June.
Looking ahead, several challenges loom on the horizon, including a scarce supply of AI chips as data centers wrap up initial construction phases, and rising competition from the likes of Advanced Micro Devices (AMD), which offers lower-cost GPUs compared to Nvidia.
Nevertheless, analysts remain overwhelmingly bullish on Nvidia stock - and have been raising their price targets accordingly.
Nvidia's Stock Split
On June 10, Nvidia successfully completed a 10-for-1 stock split. Before the split, the stock was trading at an all-time high of more than $1,200 per share, a high price tag that served as a psychological barrier for some investors, and restricted some smaller investors from buying.
Consequently, after the split, NVDA opened for trading at around $120 - making it more attractive to retail traders, and enabling new investors to buy into the Nvidia story at a reasonable price.
Remember, the stock split does not change the company's valuation; it only affects the stock's per-share price, and the number of outstanding shares.
Standout Earnings Performance
Many investors, including myself, throw a lot of weight behind a company's financial performance. On that front, Nvidia has been a model performer, impressing even its biggest bulls with its robust recent earnings results.
Recently, Nvidia announced the earnings print for Q1 of the fiscal year 2025, where the company achieved a remarkable 262% year-over-year increase in revenue, reaching $26 billion. Its gross margin also expanded significantly by 13.8 percentage points to 78.4%. As a result, their earnings per share (EPS) surged by an impressive 461% to $0.61, on a non-GAAP basis. Nvidia's impressive 75% gross margin showcases a significant profit margin over the costs paid to its manufacturing partners.
Nvidia's trailing 12-month adjusted EPS spiked by 10 times annually to stand at $1.23. Longer-term, a glance at its operating results over the past five years shows consistent growth, with revenue up 458%, and gross profit rocketing by 790%, while net income rose by a staggering 964%. This massive growth over the years demonstrates Nvidia's financial sustainability and great promise for continued success in the future.
NVDA Dominates the AI Chip Space
Nvidia is also pushing its boundaries into next-generation AI chips. Earlier in the year, it unveiled its much-talked about Blackwell AI chips. The architecture marks a major advancement in generative AI and accelerated computing, enabling trillion-parameter large language models (LLMs) to operate with up to 25 times less cost and energy consumption compared to the NVIDIA Hopper architecture.
Blackwell builds upon previous NVIDIA technologies, defining the next chapter in AI with unparalleled performance, efficiency, and scalability. The Blackwell GPUs pack an amazing 208 billion transistors and are manufactured using a custom-built TSMC 4NP process GPU. NVIDIA's cutting-edge AI hardware has significantly expanded the company's market share. The company has a commanding 80% share of the GPU market for AI workloads, which is expected to grow more in the future with the help of the latest architecture chips.
On June 2, Nvidia CEO Jensen Huang revealed another major catalyst for the company, named "Rubin." That's the upcoming AI GPU architecture of the company, with the series expected to launch between late 2025 and early 2026. Rubin GPUs will feature a 4x reticle design, advanced TSMC CoWoS-L packaging on the N3 process node, and HBM4 memory support, aiming to enhance performance and efficiency. Additionally, the series will introduce the Vera CPU, part of the Vera Rubin board, which will further boost computational power.
Collectively, Bloomberg reports that Microsoft (MSFT), Meta (META), Amazon (AMZN), and Alphabet (GOOGL) have invested over $150 billion in capex on AI chips over the past four quarters, with most of that going to Nvidia. This substantial financial commitment underscores their growing reliance on Nvidia's technology to power the next generation of AI advancements. As these data center giants continue to integrate Nvidia's solutions into their AI infrastructure, the bullish outlook for NVDA stock remains intact.
Analysts Raise the Bar for NVDA Stock
As mentioned earlier, analysts are overwhelmingly optimistic about NVDA stock. On average, Wall Street analysts have assigned Nvidia stock a "strong buy" rating, with a mean price target of $133.21. That indicates expected upside of 4.4% from Wednesday's close. Among the 40 analysts covering the stock, 35 call it a "strong buy," 2 assign a "moderate buy," and one recommends a "hold" rating.
Recently, Rosenblatt Securities raised its NVDA price target from $140 to $200, a new Street-high, following the stock split. Likewise, Constellation Research founder Ray Wang believes that Nvidia stock can hit $200 in the next 12 months. That indicates a premium of 56.7% to Wednesday's closing price.
Analysts anticipate that Nvidia's EPS will rise to $3.17 by 2026, based on its current 40 times earnings ratio valuation. I believe this valuation is justified, considering its powerful positioning as an AI chip maker.
On the date of publication, Nauman Khan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
