With a share price that’s more than tripled since the start of 2023, you might think that Nvidia’s (NASDAQ:NVDA) stock price run is getting a bit long in the tooth, and should be just about done.
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But not so fast, says TD Cowen. Turns out, the best performing stock in the S&P 500 of 2023 is also TD Cowen’s ‘”best idea for 2024″ as well.
In a recent research note calling Nvidia an “obvious” stock pick, TD Cowen analyst Matthew Ramsay argues that “Nvidia is the leader in the most consequential growth vector of computing arguably ever (and certainly since the advent of the Internet).” It’s also a stock riding a rocket to $700 a share over the next 12 months – a ride that should deliver 50% profits to investors next year, even after having already tripled in 2023. (To watch Ramsay’s track record, click here)
Ramsay sees three key factors adding up to Nvidia winning again in 2024:
First, Nvidia is already far and away the leader in the artificial intelligence race. And this race has a long way to go, being “very early in the era(s) of accelerated computing and generative AI.”
Second, the company is accelerating the rate at which it rolls out new semiconductor chips to take advantage of this long-term AI trend, planning at least one new product launch annually beginning in 2024.
Third and finally – and perhaps counterintuitively – Ramsay argues that Nvidia stock within 5% of its all-time high share price is actually “near the low-end of its five-year range on most metrics” is actually a bargain. He theorizes that 2025 will be a “digestion” year for the stock in which Nvidia doesn’t grow much, and that this is the reason Nvidia stock is not valued even more richly than it already is.
Does this make sense? To an extent, it does.
For example, with the dominant market share in AI chips already, Ramsay posits that Nvidia can continue to capture up to 60% of a total addressable market of $250 billion in annual spending on AI chips, even assuming other players emerge to compete with it (such as AMD with its “highly competitive MI300X” AI chips).
On the hardware front, Ramsay notes that Nvidia is in the process of launching and ramping production of H200 and GH200 chips, shortly to be followed by B100 chips. The analyst calls this a “shocking acceleration in roadmap cadence” that will “widen NVIDIA’s competitive advantage and drive another product-driven investment cycle in F2025/F2026.”
That being said, the company’s 26.4 price-to-sales ratio, for example, far exceeds the (still expensive) 17.1x sales Nvidia has averaged over the last five years. Its price to book value ratio – 35.3 – is nearly twice as high as its 18.1 P/B average. And despite sporting extremely high profit margins of late, that are helping to push its price-to-earnings ratio down to “only” 62.7, this valuation is actually pretty close to (and indeed a bit above) its long-term average trailing P/E of 58.8.
What does the rest of the Street think of NVDA? As it turns out, 31 out of 34 analysts that have published a recent review see the stock as a Buy, making the consensus rating a Strong Buy. Adding to the good news, the $661 average price target indicates ~40% upside potential. (See NVDA stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
