In 2023, Nvidia’s (NASDAQ:NVDA) stock price more than doubled over one year. In 2024, these gains continued, with fresh all-time highs being seen on what seems like a daily basis. This will have big implications for NVDA stock holders moving forward.
Fueled by its AI dominance, Nvidia’s chips have revolutionized key industries, allowing for the widespread adoption of high-performance computing for various companies. Nvidia’s valuation has become a focal point for both bulls and bears, with some arguing this company is severely overvalued, and others looking at a 26-times forward price-earnings ratio as reasonable. It’s really all about how you view this stock, from my perspective.
The company has shown robust financial performance. Nvidia’s recent Q3 results showcased some impressive figures, including 206% year-over-year revenue growth and 588% year-over-year net income growth.
Nvidia dominated the generative artificial intelligence market last year, claiming over 85% share. Its revenue skyrocketed, leading to a $1.2 trillion market cap. Despite nearing $600 per share, I’ve actually shifted my view somewhat on the company’s valuation. Here’s the bull case behind why investors may actually want to consider NVDA stock at around 48-62 earnings right now.
Partnership with Meta Platforms
Meta Platforms (NASDAQ:META) is a client most companies would simply want to have purchased their product. In the case of Nvidia high-performance chips, Meta has done just that.
The social media giant has announced billions of dollars of orders for Nvidia’s renowned AI-focused chips for its extensive computing infrastructure. In a January 18 Instagram Reels post, Zuckerberg outlined plans to integrate 350,000 H100 graphics cards from Nvidia into Meta’s computing infrastructure by the end of 2024.
While the exact expenditure remains undisclosed, analysts estimate it’s a significant investment, considering the current market price of the H100 chips.
Zuckerberg revealed that Meta’s compute infrastructure would encompass “almost 600k H100 equivalents of compute, including other GPUs.” In pursuing artificial general intelligence, Meta joins tech giants utilizing a range of AI chips. The emphasis on GPUs is crucial in the AGI race, highlighting the ongoing AI competition led by Nvidia’s Jensen Huang.
In Meta’s Q3 report, it disclosed that 2024 expenses would range from $94 billion to $99 billion, with a focus on AI expansion. Zuckerberg emphasized AI as the top investment, intending to “open source responsibly” its upcoming “general intelligence.” The Llama large language models and AI research teams, FAIR and GenAI, are collaborating for accelerated progress.
It’s All About AI
NVDA stock surged from $191.62 to more than $600 per share, marking a 210% growth in less than a year, fueled by the increasing demand for AI chips. The company’s annual AI chip sales approach $20 billion, contributing to the remarkable growth seen across businesses utilizing Nvidia’s hardware.
Nvidia’s software, incorporating AI features like image generation and video upscaling, enhances visual performance. The Nvidia AI Platform provides essential tools for global businesses, despite facing competition in the AI software market. In a dynamic industry, Nvidia competes with rivals like Intel and AMD, both experiencing significant market growth.
The rise of Application Specific Integrated Circuits (ASICs) poses a challenge, but Nvidia remains vital in the expanding AI landscape.
Nvidia Raises the Bar
Nvidia’s remarkable past may set a challenging precedent, with expectations tempered for sustained hypergrowth. To maintain its current valuation, the company needs continuous success in AI for nearly a decade. Trading at 78.34 times earnings and 30 times sales, Nvidia’s overheated ratios may cool over time.
Nvidia might consider a larger-scale approach to sharing profits with investors, potentially enhancing investor returns. However, this strategy could limit freedom for future growth investments, striking a balance between generosity and potential growth hindrance.
Over a long-term horizon, seemingly ambitious market cap targets can evolve into reality, as witnessed by the evolution of the trillion-dollar club in recent decades. This makes NVDA stock a must-buy chip play for investors looking for substantial gains in the years to come.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
