Over the past two years, the rise of artificial intelligence (AI) has led to NVIDIA (NASDAQ: NVDA)The company designs and manufactures most of the industry’s chips, but while business is booming, its stock price seems to be stalling. Why is this Determine what is happening Nvidia shares could hit $200 by the end of the year.
Nvidia’s rapid growth slows
Nvidia’s stock price has risen about 2,450% over the past five years, making it an attractive investment for mid- to long-term shareholders. But this theory is starting to fall apart as the company’s strong performance no longer impresses the market as it once did.
Second-quarter revenue rose 122% year over year to $30 billion, driven by huge demand from NVIDIA. Data Centres Graphics Processing Unit GPUs help run and train AI algorithms. The company’s revenue was also strong, with operating profit increasing 174%. Year-on-year change To $18.6 million. Management expects Release Develop new AI hardware products based on the faster, more efficient Blackwell architecture to stimulate customer demand in 2025 and beyond.
Nvidia’s board of directors also approved a massive investment of $50 billion. worth it Share buybacks During the quarter, investors can increase their demand for future earnings. Number of shares issued.
But while these are objectively good results, NVIDIA’s split-adjusted stock price has fallen about 10% since the Aug. 28 announcement, suggesting that many market participants believe the business’s momentum is unsustainable.
Dark clouds gathering over the AI industry
Investors have several reasons to be skeptical of Nvidia’s current performance. First, the consumer software side of the generative AI industry teeth Its profitability remains unproven. For example, analysts at Goldman Sachs anxiety Today’s AI systems simply It is not designed to solve problems complex enough to justify its cost.
And the technology behind it Large-scale language models LLMs like ChatGPT continue to improve, but that doesn’t necessarily mean Easier Competition from free and open source rivals makes monetization difficult Meta Platform Llama or Elon Musk’s Grok.
There’s a growing risk that AI will follow the same pattern as past hype cycles like the internet and electric cars, where companies built overcapacity in anticipation of consumer demand that wouldn’t materialize anytime soon. If that happens with generative AI, the market for Nvidia’s pricey data center hardware could stagnate or decline in the near term, even if the technology becomes widely adopted in the coming decades.
The story continues
Nvidia’s Uncertain Path to $200 a Share
After a 10-for-1 stock split in June, Nvidia shares are trading at a modest $115. truth Size. With a market capitalization of $2.84 trillion, the GPU chip maker is already the world’s third-largest company. Microsoft and apple, these are Equivalent to $3.23 trillion and $3.3 trillion, respectively.
A 73% rise to $200 would give NVIDIA a market cap of roughly $4.9 billion, likely propelling it into first place. Forecasted price-earnings ratio It trades for just 41 times earnings, but given triple-digit earnings growth, the stock appears to have room to grow even further.
That said, unlike typical mega-cap companies that have built their businesses over decades by serving established, profitable sectors of the economy, NVIDIA’s business remains speculative and uncertain, and its valuation remains cheap. The company’s stock is unlikely to hit $200 in 2024 or anytime soon, and that’s unlikely until the software side of the AI industry starts to grow. My Weight. And it’s never guaranteed.
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Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Will Ebefan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple, Goldman Sachs Group, Meta Platforms, Microsoft, and NVIDIA. 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.
Will Nvidia Stock Hit $200 in 2024? was originally published by The Motley Fool.
