Nvidia investors may have grown accustomed to the company’s phenomenal performance.
NVIDIA (NVDA 3.54%) The company’s stock has seen a surge in value that is unprecedented for a company of its size: In 2023, shares have risen by nearly 240%. 2024 hasn’t been as strong, but it’s still impressive, with Nvidia shares up about 108% so far this year.
Investors have gotten a bit spoiled by Nvidia’s performance over the past two years, but as things stand, some might think Nvidia’s stock could double again next year. Is this possible?
AI drives demand for Nvidia’s GPUs
Nvidia’s rise is directly tied to the rise of artificial intelligence (AI) computing. The company’s graphics processing units (GPUs) can handle multiple calculations in parallel, which helps train AI models. Nvidia’s products are arguably the best in the field, which makes them a natural top pick for companies looking to build out their AI computing infrastructure. The key here is that these companies don’t just buy one or two GPUs, they connect thousands of these devices together to create machines that can crunch massive amounts of information quickly.
As a result of this demand, Nvidia’s sales have skyrocketed.
NVDA Revenues (TTM) data from YCharts
Revenues for the second quarter of fiscal year 2025 (ending July 28) increased 122% year over year to $30 billion. The data center business had its strongest quarter, with revenues increasing 154% year over year to $26.3 billion. Notably, this was up 16% quarter over quarter, indicating demand is still growing.
Business isn’t slowing either: Management expects third-quarter revenue of $32.5 billion.
Clearly, Nvidia’s business is hugely successful and demand is still growing, but is this enough to double the stock price?
Nvidia’s stock price already has a lot of success priced in
For Nvidia’s stock price to double, the company’s market cap would need to be $5.2 trillion. For comparison, the largest company in the world is Apple, which has a market cap of just under $3.4 trillion.
That’s a tall order to accomplish in just one year, and it’s unlikely to be achieved within that time frame.
Why? Because all of Nvidia’s growth is already priced into the stock price. Looking at Nvidia’s valuation metrics, we can calculate that Wall Street is already pricing in roughly 33% revenue growth between now and the end of the fiscal year.
NVDA price-to-earnings data from YCharts
Nvidia’s earnings per share (EPS) grew 168% in the second quarter, but that figure coincides with a strong quarter in fiscal 2024, so it’s likely to face tough comparisons. What’s more, the stock is quite expensive at 50 times past year earnings and 37 times future earnings.
Companies with strong traditions like NVIDIA typically trade at around 30 times forward earnings, so not only will it take NVIDIA’s stock a bit longer to get back to that level, but earnings would also have to double for the stock price to double.
When will that be?
At Nvidia’s current stock price, with future EPS projections of $7.08, the stock needs to be worth 15 times future earnings. We’re setting the base valuation at 30 times future earnings, which would put the stock at 2 times.
Longer-term earnings forecasts aren’t easy to find, with only one Wall Street analyst providing an EPS forecast for fiscal year 2028 (ending January 2028), which sees EPS of $5.45, still far from the required $7.08.
If this growth trajectory continues, NVIDIA will reach its goal in about four and a half years, around fiscal 2029. While it won’t double in a year, this performance would still outperform the overall market, which tends to double roughly every seven years.
Nvidia’s stock price isn’t going to double anytime soon, but that doesn’t mean it’s not a solid investment now.
Keithen Drury has no position in any of the stocks mentioned. The Motley Fool owns shares in and recommends Apple and Nvidia. The Motley Fool has a disclosure policy.
