Nvidia (NVDA) stock is up nearly 180% year-to-date, and concerns are mounting about the company’s ability to meet investors’ expectations and continue to run. The chart reflects a tug-of-war between the bulls and the bears because the stock is up on some days and down on others. So, can Nvidia stock continue to make new all-time highs after its incredible surge? That’s the question I’m going to answer in this article.
We all know Nvidia for its graphics processing units, or GPUs, which are really powerful general-purpose processors used in everything from video games to mining crypto to training multi-billion parameter models like ChatGPT. However, that’s not all that Nvidia makes. The company also makes other processors, like DPUs, CPUs, and switches, that are purpose-built for AI supercomputing.
Bears think the numbers got too big too quickly, and Nvidia’s run is over. However, I remain bullish on the stock for the long term because of the company’s enormous moat, its key-enabler status, and its multi-year growth opportunities.
Nvidia Has an Enormous Moat
Nvidia has a wide moat, and that’s one of the top reasons for my bullish outlook on it. According to estimates from Mizuho Securities, Nvidia has a 70% to 95% market share in AI chips. Its AI chips and ecosystem are unmatched, even with competitors like Intel (INTC) and AMD (AMD) and tech giants such as Alphabet (GOOG) and Microsoft (MSFT) making their own chips. It offers an entire suite of products for accelerated computing, including processors, switches, nodes, and Cuda libraries.
Consequently, this wide moat has allowed Nvidia to become one of the most profitable companies in the world. Nvidia’s trailing-twelve month (TTM) operating margins currently sit at 62% and its TTM gross margins are 76%. That shows that demand for Nvidia’s products is strong and has pricing power. Over the past 10 years, its net income has compounded at 58.5% and outpaced revenue growth of 36% over the comparable period. Therefore, Nvidia is a highly profitable company, and it is likely to remain this way because of its position and key enabler status in the AI investment theme.
Nvidia Is a Key Enabler
Another reason for my bullish view of Nvidia is its key enabler status in the AI investment theme. AI will drive many global structural changes for years, and Nvidia will remain at the center of all things AI because of its technological prowess. I’ve previously mentioned in my analysis of TSMC (TSM) that there aren’t many practical uses for AI at the moment. The applications of AI are beyond LLMs, and we can reasonably assume that Nvidia is going to facilitate those applications.
For instance, Nvidia’s October 2024 investor presentation shows some promising use cases that are just gaining traction including drug discovery, robotics, and autonomous vehicles. Nvidia is already facilitating these new use cases. Moreover, another emerging key trend is sovereign AI where governments are working on strengthening their AI capabilities, and Nvidia is their partner of choice. The company already has a Sovereign AI partner network, including France, Switzerland, Spain, and Japan.
Nvidia Has Multi-Year Growth Opportunities
Nvidia has multi-year growth opportunities ahead, and its commitment to innovating iteratively to capitalize on them is why I am long-term bullish on the stock. I’ve discussed some of these opportunities above, but I can’t predict the future, and neither can anyone else; there are too many unexplored use cases. We know right now that demand for Nvidia’s products has exceeded supply in 2024, and its Blackwell platform is in full production despite rumors of it being delayed.
Moreover, Nvidia is committed to working hard and staying ahead of the competition. The company plans to launch new AI accelerators every year. CEO Jensen Huang has outlined plans for a Blackwell Ultra chip in 2025 and another AI platform called Rubin in 2026. So there’s a lot to look forward to, and Nvidia’s run might not be over just yet.
Is Nvidia Stock Cheap?
The current hottest debate on Wall Street is around Nvidia’s fair value. Can it continue to make, if not beat, the numbers, and what kind of multiple would be fair? The stock is currently priced at 47.5 times this year’s earnings and 33.5 times next year’s earnings. Analysts on Wall Street expect earnings to grow by 139% this year, 42% next year, and then stabilize at 53% per year over the next five years. I do not like projecting too much into the future, so I will ignore the 5-year projection.
Nvidia’s market cap currently stands at $3.31 trillion, and investors expect it to deliver about $100 billion in profits annually. Its net income for the twelve months that ended July 31 was $53 billion, up 413% year-over-year. It might not be possible for Nvidia to maintain this sort of hyper-growth in the long term, but the current multiple of 33.5x next year’s earnings is not that expensive if you consider its near-term growth potential.
Moreover, Bernstein’s Senior Analyst Stacy Rasgon, a five-star analyst according to Tipranks’ ratings, thinks a multiple like “mid-to-high 30s” is not that expensive for NVDA stock if it continues to make the numbers. Rasgon has an Outperform rating on Nvidia stock and a price target of $155. So, as long as Nvidia can sustain its earnings growth, it might look cheap in hindsight.
Analysts’ Take on Nvidia Stock
On the Street, Nvidia stock has a consensus Strong Buy rating based on 39 Buy and 3 Hold recommendations. The average price target of $152.44 represents an upside of 13.09% from current levels. However, the Street high of $200 represents an upside of 50% from current levels.
The Bottom Line
Nvidia is the kingpin in AI chips, and despite the run-up in its stock price, there’s still potential for it to fly higher. Given its status as a key enabler in the AI investment theme, it’s a highly profitable company that’s growing and will likely continue to grow. While Nvidia’s chips are powering many of AI’s use cases, there are still many unexplored use cases.
Additionally, the company’s commitment to innovation and future growth prospects justify the current multiple it’s trading at. However, I would keep the stock on my watch list and wait for a pull-back. Nvidia is a stock to own, not trade, for the long term.
