Nvidia’s (NVDA) stock price has risen nearly 180% since the beginning of the year, raising concerns about whether the company can continue to operate and meet investor expectations. The chart reflects a tug-of-war between bulls and bears, as stocks rise on some days and fall on others. So, can NVIDIA stock continue to hit new all-time highs after its incredible rally? That’s the question we want to answer in this article.
Everyone knows Nvidia’s graphics processing unit (GPU). GPUs are extremely powerful general-purpose processors used for everything from video games to cryptocurrency mining to training multi-billion parameter models like ChatGPT. But that’s not all Nvidia makes. The company also makes other processors dedicated to AI supercomputing, including DPUs, CPUs, and switches.
Bears believe this number is getting too high too quickly and that Nvidia is done. However, I remain bullish on this stock long-term given the company’s huge moat, position as a key enabler, and multi-year growth opportunity.
Nvidia has a huge moat
Nvidia has a wide moat, which is one of the biggest reasons why I have a bullish outlook on Nvidia. According to Mizuho Securities estimates, NVIDIA has a 70% to 95% market share of AI chips. Its AI chips and ecosystem are growing even as competitors like Intel (INTC) and AMD (AMD) and tech giants like Alphabet (GOOG) and Microsoft (MSFT) make their own chips. It’s unparalleled. We offer a complete suite of products for accelerated computing, including processors, switches, nodes, and Cuda libraries.
As a result, this wide moat has allowed Nvidia to become one of the most profitable companies in the world. Nvidia’s trailing 12 month (TTM) operating margin is currently 62% and TTM gross margin is 76%. This shows that Nvidia products are in high demand and have pricing power. Over the past 10 years, net income has grown at a compound rate of 58.5%, outpacing the 36% revenue growth in the comparable period. Nvidia is therefore a highly profitable company and likely to remain so due to its position in the AI investment thesis and its position as a key enabler.
Nvidia is a key enabler
Another reason I’m bullish on Nvidia is its key enabler in the AI investment thesis. AI will drive many global structural changes over the coming years, but Nvidia will remain at the center of it all thanks to its technological capabilities. Previously, in our analysis of TSMC (TSM), we said that there aren’t many practical uses for AI at this point. Applications of AI go beyond LLM, and one can reasonably assume that Nvidia will facilitate those applications.
For example, Nvidia’s October 2024 investor presentation highlights several promising use cases that are gaining traction, including drug discovery, robotics, and self-driving cars. Nvidia is already facilitating these new use cases. Additionally, another important trend emerging is sovereign AI. The government is working to strengthen its AI capabilities, and Nvidia has been chosen as its partner. The company already has a sovereign AI partner network that includes France, Switzerland, Spain, and Japan.
Nvidia has multi-year growth opportunities
Nvidia has growth opportunities over the next few years, and the company’s commitment to iteratively innovating to take advantage of them is why I’m bullish on this stock long-term. I discussed some of these opportunities above, but I can’t predict the future, and neither can anyone else. There are too many untapped use cases. We currently know that demand for Nvidia products will outstrip supply in 2024, and that the company’s Blackwell platform is running at full capacity despite rumors of delays.
Additionally, Nvidia is working hard and is committed to staying ahead of the competition. The company plans to launch new AI accelerators every year. CEO Jensen Huang 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 may not be over yet.
Is Nvidia stock cheap?
The hottest debate on Wall Street right now is over Nvidia’s fair value. Even if it doesn’t exceed it, can it continue to produce this number, and what kind of multiple is fair?The company’s stock currently has a PER of 47.5 times this year and a PER of 33.5 times next year. are. Wall Street analysts expect profits to rise 139% this year and 42% next year, before holding steady at 53% annually over the next five years. I don’t really like predicting the future, so I’ll ignore the 5-year forecast.
Nvidia’s market capitalization currently stands at $3.31 trillion, and investors expect the company to generate annual profits of about $100 billion. Net income for the 12 months ended July 31 was $53 billion, an increase of 413% from the same period last year. It may not be possible for Nvidia to sustain this kind of hyper-growth over the long term, but its current multiple of 33.5x next year’s earnings isn’t too expensive considering its near-term growth potential.
Additionally, Bernstein senior analyst Stacey Rasgon is a five-star analyst according to Tipranks’ ratings, and if NVDA stock continues to post these numbers, it will be in the “mid to high 30s.” We believe that the multiple is not that expensive. Rasgon rates Nvidia stock as Outperform and has a price target of $155. So as long as Nvidia can maintain earnings growth, it may look cheap in hindsight.
Analyst views on Nvidia stock
Word on the street: NVIDIA stock has a consensus rating of Strong Buy, based on 39 buy recommendations and 3 hold recommendations. The average price target is $152.44, representing a 13.09% upside from current levels. However, a street high of $200 represents a 50% upside from current levels.
See more NVDA analyst reviews
conclusion
Nvidia is a mainstay in AI chips, and even though its stock price has soared, it could still rise. Given its position as a leading enabler of the AI investment theme, the company is a profitable and growing company with the potential to continue to grow. Nvidia’s chips power many use cases for AI, but there are still many unexplored use cases.
Additionally, the company’s commitment to innovation and future growth prospects justify the current stock multiple. However, I will keep the stock on my watchlist and wait for a rebound. Nvidia is a stock to own rather than trade for the long term.
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