NVIDIA (NASDAQ: NVDA) The stock price rose 150% in the first half of 2024 but has slumped since mid-July as investors braced for potential headwinds.
There have been rumors of delays to new artificial intelligence (AI) chips for data centers, which make up the bulk of the company’s revenue, and analysts are questioning how much longer Nvidia’s major customers can keep spending billions on its AI ambitions.
But those concerns may have been allayed in recent weeks, and here’s why Nvidia stock could soar to new highs by the end of 2024.
Attention is focused on the new Blackwell GPU
Nvidia’s flagship datacenter H100 graphics processor (GPU) became the AI industry benchmark last year. GPUs are designed for parallel processing, capable of handling multiple tasks simultaneously while sustaining high throughput, and their built-in memory make them ideal for processing the massive amounts of data necessary to train AI models and perform AI inference.
According to Nvidia CEO Jensen Huang, data center operators could spend $1 trillion building out GPU infrastructure over the next few years. That’s a big opportunity, which is why the company continues to design new chips with more processing power and better energy efficiency to stay ahead of the competition.
Nvidia is currently shipping its new H200 GPU, which can run AI inference nearly twice as fast as the H100 while consuming half the power, but the company recently announced an entirely new GPU architecture called Blackwell that promises another leap in performance.
For example, the new Blackwell-based GB200 NVL72 system runs AI inference at an astounding 30 times faster than a comparable H100 system. At $30,000-40,000 for an individual GB200 GPU, roughly what many customers paid originally for an H100, making it incredibly cost-effective. As a result, demand is likely to significantly exceed supply.
In fact, Huang said that Blackwell’s GPUs will bring in billions of dollars in revenue in the fourth quarter of fiscal 2025 (which begins in November) as shipments to customers ramp up, quashing earlier rumors that the new chips could be delayed by several months.
Many of Nvidia’s major customers want more GPUs
Huang says data center operators can earn $5 over four years for every dollar they spend on GPUs by renting computing power to AI developers, which is why the world’s largest cloud providers, including Microsoft, Amazon and Oracle, are clamoring to get their hands on as many chips as they can.
The story continues
Other tech companies also need more chips to develop AI for their own purposes: Tesla aims to have a cluster of 50,000 GPUs online by the end of 2024 to further train its AI-based self-driving software, while Meta Platform wants to have 600,000 H100-equivalent chips up and running by the end of the year to train the next iteration of its Llama large-scale language model (LLM), which will power new AI features for Facebook and Instagram.
Unfortunately, Nvidia can’t keep up with the demand. Oracle Chairman Larry Ellison said he recently had dinner with Huang along with Tesla CEO Elon Musk. Apparently, he and Musk pleaded with Huang for more money to buy more GPUs.
It’s no surprise that supply is tight: Microsoft alone has more than $55 billion in capital expenditures (capex) planned for fiscal year 2024 (ending June 30), most of it on AI data center infrastructure and chips. Similarly, Amazon has said it will spend more than $60 billion in 2024.
That’s why NVIDIA reported record data center revenue of $26.3 billion in just its most recent fiscal second quarter (ended July 28), up 154% from the same period a year ago. Without supply constraints, the results might have been even better.
NVIDIA stock looks cheap given future profitability
Nvidia shares are currently trading 15% below their all-time highs, but I think they’ll recover to those levels (and beyond) in the coming months.
With trailing-12-month earnings of $2.20 per share, the stock is trading at a price-to-earnings (P/E) ratio of 52.5, significantly more expensive than the broader tech sector, as represented by the Nasdaq-100 Index’s P/E ratio of 30.8.
But the stock market is forward-looking, and Nvidia’s fiscal 2026 is just a few months away, starting at the end of January 2025. I think investors will soon start valuing the stock based on its potential earnings in the new year.
Wall Street expects Nvidia to earn $4.02 per share in fiscal 2026, giving the company’s stock a forward P/E ratio of just 28.7. From this perspective, it actually looks pretty cheap.
Microsoft, Oracle, and Meta Platforms are some of the companies that have committed to increasing their capital expenditures on AI next year. These companies are Nvidia’s largest customers, which mitigates some of the uncertainty surrounding Nvidia’s potential financial results next year. Therefore, I expect Nvidia’s stock price to surpass its all-time closing price of $135.58 by the end of 2024.
Should I invest $1,000 in Nvidia right now?
Before you buy Nvidia stock, consider the following:
The analyst team at Motley Fool Stock Advisor has identified 10 stocks that investors should buy right now, and Nvidia is not among them. The 10 selected stocks have the potential to generate big gains over the next few years.
Let’s look back at April 15, 2005, when Nvidia made this list… if you had invested $1,000 at the time of our recommendation, you would have $694,743.!*
Stock Advisor offers investors an easy-to-follow blueprint for success, with portfolio construction guidance, regular updates from analysts and two new stock picks every month. Stock Advisor The service is More than 4 times First S&P 500 recovery since 2002*.
View 10 stocks »
*Stock Advisor returns as of September 16, 2024
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and communications at Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Anthony DiPizio has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Meta Platforms, Microsoft, NVIDIA, Oracle, and Tesla. The Motley Fool recommends long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Prediction: Nvidia stock will soar over the remainder of 2024. This was originally published by The Motley Fool.
