For much of 2023, Nvidia (NASDAQ:NVDA) stock news was positive, but more recently, much of it has been of the negative variety. The market’s enthusiasm for AI stocks continues to cool. High interest rates are making investors hesitant about tech stocks, which, based on traditional valuation metrics, appear pricey in a world of 5% interest rates.
To top things off, Nvidia appears vulnerable, as tense relations between the U.S. and China affect its business. As these factors drive fear, uncertainty, and doubt about the stock, it’s not surprising many believe a continued correction is in store for shares. However, it’s not set in stone, as I’ll explain below.
NVDA Stock: No Need to Panic
Concerns about Nvidia may be rising amongst the investing public, but much suggests that the market is overreacting to this news. Yes, there are concerns about growth deceleration in the coming fiscal year (ending January 2025), after the jaw-dropping levels of growth during this fiscal year.
As the valuation of NVDA stock (forward earnings multiple in the high-30s) is based on the expectation of high future growth, I can understand why this is a concern. Yet while growth is likely to slow down, it’s not screeching to a halt. Sell side forecasts call for Nvidia’s revenue to grow by 46.8% during FY2025. Not too shabby.
Earnings are expected next fiscal year to rise by an even greater amount (52.8%). This high level of projected earnings growth calls into question the argument shares have become too pricey. Sure, projections are always subject to change. One recent negative development (the U.S. curb on AI chip sales to China) may have a $5 billion impact on sales.
Still, overall AI chip sales are running in the tens of billions (and still climbing). Demand from other end users will likely help to mitigate the impact of this geopolitical headwind.
A Path to $1000 Per Share?
With AI chip demand still increasing, and as demand trends among the company’s non-AI end user markets improve, Nvidia appears well-positioned to meet/beat expectations with its subsequent earnings releases.
Even if interest rates stay high in the coming twelve months, continuing to place pressure on the market, a high level of earnings growth could help NVDA stock bounce back. Re-hitting past price levels (north of $500 per share) is well within reach.
However, it’s not as if the only “play” with NVDA is to buy now at around $410 per share, and flip it once it re-hits $500 per share. Over the next few years, this stock may just well soar to prices nearing, or even topping, $1000 per share. As I recently argued, Nvidia is the dominant name in AI chips, and that’s not going away.
Even as competitors play catch up, Nvidia’s market share (estimated to be in the 70%–80% range) may not decrease by much. With the AI chip market set to keep climbing at a rapid clip, don’t discount NVDA’s chances of hitting the level of earnings needed to send this stock up to $1000 per share (around 144% above today’s price levels).
There’s Still Good Reason to Stay Bullish
In the immediate term, these worries could keep affecting the performance of NVDA. Shares may even slide down below the $400 per share price levels. However, if worries keep weighing on Nvidia in the coming weeks, don’t fear.
Take advantage instead. Entering/adding to a position could soon start to pay off as soon as Nov. 21. That’s when the company next reports quarterly earnings. The latest results/updates to guidance could assuage concerns, sparking a post-earnings rally.
Even if there isn’t a post-earnings rally, barring the unforeseen unveiling of news/results that materially changes the story, still hang onto a position.
It may take several quarters for the market at-large to assume a bullish stance again on NVDA stock, but in time, those focused on the future, not dwelling on temporary concerns, could be rewarded in a big way.
NVDA stock earns an A rating in Portfolio Grader.
— Louis Navellier and the Investor Place Research Staff
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Source: Investor Place