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The rapid expansion of artificial intelligence (AI) in 2023 has been like a wildfire - and one that seems unlikely to burn out any time soon. It is rapidly transforming almost every industry and has become ingrained in our daily lives. In fact, the market is predicted to grow 20-fold to $2 trillion by 2030. With the surging demand for AI, tech companies are ramping up their AI offerings - meaning more business for names like Nvidia.
Although many outstanding players exist in the AI race, some investors prefer to stick with companies they believe are tried and tested. Chip market leader Nvidia (NVDA) has been one of the front-runners in the AI race. The company has survived and thrived amid many economic backdrops. NVDA has gained an eye-catching 10,738% in the last ten years.
As the AI space expands, Nvidia's phenomenal growth this year, combined with a bullish outlook for the industry, has pushed its stock up 179% year to date, outperforming the Nasdaq Composite Index's ($NASX) 22% gain. Nonetheless, Wall Street analysts believe this outstanding chip stock has a lot more upside. Will NVDA stock reach $1,000, as some analysts predict? Let’s find out.
Impressive Growth Trend
Nvidia's expertise in accelerated computing has propelled it to the top of the AI investment list. Its high-end graphics processing units (GPUs) are in high demand across automotive, healthcare, gaming, data centers, and AI.
Its processors have played an important role in the success of Open AI's ChatGPT, alongside other AI apps. Nvidia’s revenue grew 101% year-over-year and 88% sequentially to $13.5 billion, while adjusted diluted earnings per share (EPS) jumped an astonishing 429% to $2.70 in its Q2 fiscal 2024.
As more companies integrate AI into their products, demand for Nvidia’s chips is on the rise. The company is making all efforts to boost supply to continue meeting this growing demand for H100 GPUs.
Its data center revenue surged 171%, while gaming revenue increased 22% from the prior-year quarter. The personal computer (PC) market is recovering, as evidenced by the growth Microsoft (MSFT) reported in its most recent quarter. This recovery could boost Nvidia’s gaming revenue in the upcoming quarters.
Recently, NVIDIA and Anyscale announced a partnership to develop large language models with generative AI. Furthermore, Nvidia has formed strategic alliances with Indian companies to bring AI to industrial, telecommunications, and other sectors. And with the rise of self-driving cars, Nvidia's Drive platform is likely to play an increasingly significant role.
A Bump in The Road
Recently, the Commerce Department announced that the Biden administration intends to halt the export of advanced AI chips designed by Nvidia and others to China. The decision seeks to limit China's access to advanced U.S. technologies essential to Chinese military applications.
Responding to this, Nvidia noted that, given the enormous global demand for their products, the decision will have no impact on its current quarter, which ended on Oct. 29, or near-term results. However, only time will tell the full impact that the U.S.-China trade tensions could have on its future quarters.
On this note, Citi analysts lowered their sales estimates for Nvidia’s fiscal years 2025 and 2026. The firm also lowered the stock's target price to $575 from $630, with a “Buy” rating.
Still Plenty of Growth Ahead
Nvidia’s peer, Advanced Micro Devices (AMD), plans to launch its MI300 accelerators in Q4 2023, which will compete with Nvidia's A100 and H100 GPUs. Furthermore, OpenAI, Microsoft, and others intend to develop their own AI chips to address the demand-supply imbalances for Nvidia's H100 chips. But even if this happens, it will be difficult to shake up Nvidia’s dominant position in the chip market.
Looking ahead, analysts seem optimistic that the chipmaker's dominant performance in 2023, combined with AI tailwinds, will keep the growth trajectory going. Overall, analysts foresee a gigantic 785.3% growth in Q3 earnings to $3.01 per share. For the full fiscal year 2024, EPS could jump 289.4% to $9.54 before rising to $14.96 in fiscal 2025. In the last three quarters, the company has outperformed earnings expectations.
Analysts believe a 100.5% rise in revenue to $54 billion in fiscal 2024 could drive earnings, with an increase to $79.4 billion projected for fiscal 2025. For the upcoming Q3, analysts’ prediction of 170% growth to $16 billion in revenue is in line with management’s forecast.
What's the Stock Price Prediction for NVDA?
Nvidia remains a “Strong Buy” in the analyst community. Based on the 35 analysts covering the stock, 31 rate it a “Strong Buy,” 3 rate it a “Moderate Buy,” and 1 analyst rates it a “Hold.”
While the general outlook is bullish for Nvidia after its strong Q2 earnings, Rosenblatt Securities analyst Han Mosesmann has high hopes for the stock. The analyst raised his target price from $800 to $1,100, which implies an upside potential of 170% from current price levels.
Given the current macroeconomic headwinds and geopolitical tensions, the idea that NVDA's stock price could more than double to trade above $1,000 per share by October 2024 might seem a little far-fetched. On average, the Street’s target price for NVDA stands at $625.53, implying an upside potential of 53%.
The stock trades at 38 times forward earnings and 19 times forward sales. Although it looks steep, based on its 2024 growth estimates, the valuation seems justified.
The Key Takeaway for Nvidia
All in all, considering its technological prowess, market presence, track record, resilience, and continued innovation in the AI domain, Nvidia emerges as a compelling prospect for investors looking to tap into the growth of the AI industry.
I believe that although NVDA may not hit $1,100 in the next 12 months, the average expected upside of 53% is likely. For investors wanting to be a part of Nvidia’s growth story and looking for an entry point, the stock is trading 19% below its 52-week high now.
On the date of publication, Sushree Mohanty 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.
