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In the ever-shifting landscape of the stock market, timing is paramount. Nvidia (NVDA), a dominant force in the world of semiconductors and artificial intelligence (AI), has experienced a remarkable surge since October 2022, climbing from a low of $108 per share to a high of $974 in early March 2024. Recently, the stock price has experienced a pullback, falling approximately 18% from its all-time high. This abrupt correction has ignited a crucial question among investors: Is this pullback the golden opportunity to acquire Nvidia shares?
Let’s see whether the recent pullback could indeed be the optimal moment to capitalize on Nvidia’s long-term growth potential.
Recent News for NVDA Stock
On April 22, Nikkei reported that SoftBank (SFTBY) plans to invest 150 billion yen ($960 million) by 2025 to enhance its computing facilities, aiming to equip them with the computational capability required for crafting world-class generative artificial intelligence. Graphics processing units (GPUs) will be purchased from Nvidia.
Separately, on April 15, Evercore ISI initiated coverage of Nvidia with an “Outperform” rating and an $1,160 price target. The firm believes that investors undervalue the significance of Nvidia’s established chip, hardware, and software ecosystem, arguing that computing epochs typically span 15-20 years and are “typically dominated by a single vertically integrated ecosystem company, whose returns are measured in 100-to-1000 bagger range.”
Nvidia Forecast for Continued Earnings Dominance
Nvidia last issued its earnings results on Feb. 21. In Q4, the company’s revenue rose 265.3% year-over-year to $22.1 billion, beating the consensus by $1.55 billion. Also, Nvidia's earnings amounted to $5.16 per share, surpassing the consensus by approximately 10% and marking a 28% increase from the previous quarter.
The main driver behind these results was the robust performance of its data center segment, which directly benefits from the expansion of AI and constitutes the vast majority of Nvidia’s business. This segment delivered 27% sequential growth and a staggering 409% year-over-year growth in the most recent quarter. The growth stemmed from the training and inference of generative AI, along with large language models (LLMs), all of which are currently experiencing high demand. This quarter marked the fifth consecutive significant beat by Nvidia.
Analysts tracking Nvidia anticipate a remarkable surge in earnings by 484.09% to $5.14 per share in fiscal Q1 of 2025. Moreover, Wall Street anticipates that NVDA’s FQ1 revenue will rise to $24.31 billion, indicating a 237.97% year-over-year increase.
Nvidia is due to report its April quarter earnings on Wednesday, May 22.
Is Nvidia Stock a Good Value Right Now?
Examining Nvidia’s valuation, the stock currently trades at approximately 32x consensus 2025 earnings and 26x 2026 earnings. This multiple is not unreasonable, given Nvidia’s robust growth. Nvidia currently holds approximately a 90% market share in AI-related chips, and the global AI market is projected to increase from around $200 billion in 2024 to $827 billion in 2028.
However, there are also risks to consider. First, the significant surge in GPU demand we’re presently witnessing may potentially diminish as the initial training phase of AI LLMs decelerates.
Second, competition in the market could intensify, with players like Advanced Micro Devices (AMD) making substantial investments to catch up in this space.
Finally, considering the strategic significance of AI, the U.S. government has been regulating the sales of certain crucial products in markets like China and the Middle East, and additional regulations could potentially have a negative impact on the company’s business.
What the Options Market Expects for NVDA
Looking at the June 21, 2024, option chain for NVDA, let’s figure out options market sentiment by comparing the open interest levels.
The put-call ratio at the $800.00 strike price, the closest to the current share price, stands at 0.83 - suggesting a stronger inclination towards call options, and potentially indicating an expected rise in stock price.
What Do Analysts Expect for Nvidia Stock?
Out of the 40 analysts covering NVDA stock, 35 recommend “strong buy,” two recommend “moderate buy,” and three recommend “hold,” for an overwhelming “strong buy” consensus.
The mean target price for NVDA is $948.73, indicating an upside potential of 19% from the current price.
The Bottom Line on NVDA Right Now
All things considered, I believe that the recent decline in Nvidia offers an excellent opportunity to acquire a high-quality stock on the dip, for those concerned about its recently lofty valuation - especially given that Nvidia’s short- and long-term growth prospects are exceptionally promising.
On the date of publication, Oleksandr Pylypenko 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.
