Nvidia (NASDAQ:NVDA) stock has managed to pull it off again, recently surging to hit new highs after many months of consolidating the explosive gains from last year. It may be hard to believe, but the stock’s valuation still doesn’t seem all that absurd. Undoubtedly, it took a few fantastic quarters for the semiconductor kingpin to grow into its lofty multiple. Given the pace of growth (which shows no signs of grinding to a slowdown) and its market leadership, I have to maintain a bullish stance.
With the generative artificial intelligence (AI) boom still heating up (one could argue it’s still in the early innings), there’s a good chance Nvidia could prove the “value crowd” wrong as sales not only meet today’s high slate of expectations but exceed them.
Wall Street Still Sees Value in NVDA Stock
It’s not a mystery why Wall Street still views NVDA stock as a Buy. I think it’s hard to be anything but bullish if you recognize the massive demand potential for next-generation chips as nascent technologies like generative AI, the metaverse, and self-driving (and electric) vehicles come onto the scene.
Further, the company’s ability to stay in the lead as new entrants give it their all to take a bit of share leaves me incredibly encouraged and perhaps willing to pay up a trailing price-to-earnings (P/E) multiple north of 72 times for the $1.35 trillion chip juggernaut.
For 2024, the analyst community is continuing to pound the table, with few highlighting valuation as an issue, at least compared to many of its AI rivals who’ve suffered downgrades following last year’s hot tech surge.
Oppenheimer’s Rick Schafer has a Buy rating on Nvidia stock, with a $650.00 price target, which entails 18.6% in gains for the year ahead. Schafer isn’t just bullish on Nvidia stock for 2024; he views it as one of his “top 2024 picks” to bet on AI.
What could help power the next leg of gains for Nvidia? Schafer views Nvidia’s B100 GPU — an AI chip that reportedly will double the performance of its H200 chip — as a potential catalyst once it’s released this year. Those are some serious performance gains that could help Nvidia gain even more ground over its chip peers. In many ways, Nvidia seems to be sprinting in the AI race as many of its competitors merely jog.
Why Nvidia Stock Deserves an Even Higher Multiple
It’s tough to make an argument that a stock going for more than 70 times trailing P/E is undervalued. Looking at the forward P/E multiple one year out (currently at 27.5 times, just 25% more than the semiconductor industry average of 21.8 times), though, it becomes more apparent that Nvidia is delivering on the earnings growth front, perhaps sooner than many skeptics may have anticipated.
Perhaps Nvidia’s generational growth prospects warrant an even higher price tag and certainly a greater premium over the peer group.
I’ll admit that I was one of the Nvidia skeptics who questioned the stock’s sky-high multiple and the firm’s abilities to meet what I thought were absurdly high expectations. I’ve since changed my tune, given Nvidia’s ability to deliver chips that outdo predecessors by leaps and bounds.
Further, the AI arms race could stand to heat up again as firms get serious about having the very best hardware to power their AI models. In 2024, the firms that possess B100 chips may have a competitive advantage over rivals with the H-series line of chips.
Many big-name analysts on Wall Street make a compelling case for why it makes sense to view the seemingly expensive growth stock as a potential value play. As the great Warren Buffett once put it, “growth and value investing are joined at the hip.”
Growth and value investing are similar in that investors strive to get more (intrinsic value) for less. At this juncture, Nvidia stock may very well be a play that momentum and value investors can appreciate.
Is NVDA Stock a Buy, According to Analysts?
On TipRanks, NVDA stock comes in as a Strong Buy. Out of 36 analyst ratings, there are 32 Buys and four Hold recommendations. The average NVDA stock price target is $661.64, implying upside potential of 21.2%. Analyst price targets range from a low of $560 per share to a high of $1,100 per share.
The Bottom Line on Nvidia Stock
A lead in the chip scene, I believe, ought to be worth a far larger premium to the industry, given how difficult it is for laggards to catch up to leaders in the world of chips.
Indeed, by the time a competitor launches its latest and greatest offering that’s comparable to a past Nvidia chip, Nvidia has likely already moved on to its next product (for 2024, that’d be the B100 chip), one that’s likely more powerful, faster, and perhaps even more power efficient.
