Despite all the skeptics claiming that it has gone up “too far, too fast,” Nvidia (NASDAQ:NVDA) continues to climb, as investors wager that the chip maker will benefit from the artificial intelligence megatrend. Year-to-date, NVDA stock is up by nearly 93%.
While another near-doubling in price may not be just around the corner, a further moderate climb higher is likely in the near-term. The chip maker continues showing there is more than sufficient substance to go along with rising excitement about its shares since January.
NVDA may seem pricey at its current earnings multiple (158.5), but not only are earnings expected to bounce back in a big way this fiscal year. Analysts believe there’s a path for shares to sustain and add to their current valuation.
As for the long-term? There’s even greater potential for profit, thanks to a non-A.I. catalyst.
How NVDA Stock Could Keep ‘Crushing it’
“A.I. mania” has simmered down with other popular A.I. stocks. As I discussed recently, short-seller allegations have brought the extended rally with C3.ai (NYSE:AI) to a screeching halt. Although I believe this to be an overreaction, this development could continue to hurt its near-term performance.
However, it’s a different story with NVDA stock. No short-seller has dared to argue that “the emperor has no clothes” with this tech giant and its A.I. catalyst. Mainly, because said catalyst is based not only on future potential, but with what Nvidia is achieving today in this area.
A good example is with Nvidia’s well-received results for the preceding fiscal quarter (ending January 2023). While the company reported year-over-year revenue and earnings declines, a result of the ongoing tech sector slowdown, high A.I./machine learning demand helped outweigh this, enabling the company to beat analyst expectations.
Nvidia keeps conveying to the market how it is currently benefiting/stands to benefit from the rapid adoption of A.I. Ahead of more promising news that may be revealed at the company’s next quarterly earnings release (set for May 24), the stock could stay on its current upward trajectory.
Don’t Forget This Secondary Catalyst
A.I. is, and will probably continue to be, the key driver for NVDA stock in the foreseeable future. However, don’t forget that this stock also has a major secondary catalyst. A catalyst that has more to do with the chip maker’s more established lines of business.
I’m talking about the tech sector recovery, and what it means for end-user demand among the other markets Nvidia serves.
It’s well worth noting that Nvidia’s earnings beat last quarter happened despite a massive drop in graphic processing unit (or GPU) demand in the gaming and PC markets. Demand in these markets may still be in a slump this fiscal quarter, staying that way in the upcoming fiscal quarter.
Still, CEO Jensen Huang already believes gaming chip demand is recovering. Based on the latest data/analysis about global PC shipments, PC demand for GPUs could make a big comeback starting in 2024. With this, coupled with A.I.-related growth, it’s no wonder the sell-side is bullish earnings will bounce back starting this fiscal year (ending January 2024).
Per their forecasts, analysts believe NVDA’s earnings could hit $4.49 per share during FY2024, climbing to $7.82 per share by FY2026.
Bottom Line
Taking the aforementioned forecasts into account, Nvidia’s valuation is far less steep than implied by the stock’s triple-digit trailing price-to-earnings (or P/E) ratio.
While still sporting a premium forward earnings multiple of around 61.8, earnings forecasts (which could be conservative given how quickly the company is capitalizing on A.I.) more than justify the current share price.
Barring an unforeseen setback, $300 per share remains well within reach in the short-term. Depending on whether a rapid recovery for the gaming and PC chip markets arrives on time, it may not be that much longer before the stock re-hits its high water mark. From there, on its way to hit new all-time highs.
If you’ve been sitting on the sidelines with NVDA stock, wait no longer. Instead, consider starting to accumulate a position at current prices.
NVDA stock earns a B rating in Portfolio Grader.
— Louis Navellier and the Investor Place Research Staff
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Source: Investor Place