It’s been a great year for Nvidia (NASDAQ: NVDA) shareholders. Prices have increased over 160% in the past 12 months and a whopping 2,100% in five years.
However, over the past month, it has started to come back little by little. The stock is currently down 16% from its all-time high, perhaps as the enthusiasm for artificial intelligence (AI) cools down a bit.
At its peak, Nvidia’s market capitalization reached $3.6 trillion. Since then, it has fallen by more than $400 billion.
To put things into perspective that I can understand, this fall alone is roughly equivalent to the combined market capitalization of three of the four largest companies in the FTSE 100: AstraZeneca, Shell and Unilever.
So what will happen in 2025? Is this just a pause before NVIDIA stock continues to soar, or could it be the first stumbling block before the stock crashes?
I can see why you would think either could happen. Or something in between.
Nvidia’s meteoric rise has been fueled by something that even reads “AI” and every CEO seems to be investing millions, even billions, in it. There’s one problem. It seems that not everyone knows how to turn it into profit or when to start making a profit.
US venture capital firm Sequoia estimates that the AI industry spent $50 billion on Nvidia chips last year. It’s just a chip, don’t worry about the rest of the infrastructure.
And the resulting revenue was only about $3 billion. Few companies have yet fully built out ways to pay their AI customers. And very few people actually figure out how to do it.
But NVIDIA knows exactly where its money is coming from, and it’s already making a lot of money. Even if many of the companies it buys chips from end up going out of business, Nvidia will still get the cash.
Still, there are still factors that could make Nvidia’s current earnings growth rate unsustainable.
Perhaps the main thing is competition. Nvidia may now have a near monopoly. But Advanced Micro Devices (better known as AMD) and Intel are also making similar efforts, with AMD already claiming it can match Nvidia’s current chips.
Considering these risks, US business analyst Trefis predicts that Nvidia could plummet by 70% to $40 starting today. Still, he said, looking on the bright side, the stock could rise to $300.
I don’t think it’s an exaggeration to say that the outlook for the next few years may be unstable.
However, what is important is long-term evaluation. Additionally, NVIDIA’s forward price/earnings (P/E) ratio, currently 46 times, is expected to decline to approximately 30 times by 2026.
I don’t think it’s far-fetched at all and could support a healthy long-term future.
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