Three sources of Nvidia (NASDAQ:NVDA)'s massive boon complement each other.
It has been common to consider Bitcoin’s (BTC) price the greatest long-term bet compared to equities and commodities. However, Nvidia (NASDAQ: NVDA) degraded that positioning during the last year. Since the end of 2014, NVDA stock has gained 21,140% value compared to Bitcoin’s 20,130% boost.
In the last five years, NVDA shares appreciated by 3,043% vs Bitcoin’s moderate 687% gains. Yet, despite Nvidia’s revenue climbing from $11.7 billion in 2019 to $60.9 billion in 2024, investors are wondering if the company’s exceedingly high price-to-earnings (P/E) ratio of 89.92 is sustainable.
After all, is it reasonable for a single chip-making company to hold more value, at $2.619 trillion, than the entire GDP of Russia or Germany’s equity market? There are plenty of semiconductor companies carrying the weight of generative AI, but Nvidia stands out from the crowd.
On the one hand, macroeconomic uncertainty pushed this phenomenon, as Bloomberg’s survey reported that investors increasingly see Big Tech companies as an inflation hedge. On the other hand, Nvidia enjoys unique advantages that make it difficult to gauge its stock’s ceiling.
1. Primary Tech Proxy
Even before shifting focus to data centers, Nvidia evolved from dominating PC graphics into automotive, networking, and cloud computing. The latter set the stage for the company’s seamless transition into AI via high-performance computing (HPC).
Nvidia’s GPUs became the default equipment for AI training with a complete stack. This was the exact solution needed when every startup under the sun was hurling to deploy AI-powered products. In turn, this placed Nvidia at the center of AI demand, although many cogs are needed to make AI scale.
From that point on, dozens of companies across different sectors had their value boost. Case in point, Texan electric utility, Vistra (NYSE:VST), gained 168% YTD, while Dell Technologies (NYSE:DELL) has been boosted by 114% owing to server racks. Likewise, Pure Storage (NYSE:PSTG) gained 75%, while Vertiv Holdings (NYSE:VRT) (NYSE: VRT) returned 132% to shareholders during the same period for its data center infrastructure.
For investors, the complexity of diversifying into dozens of companies filtered down to Nvidia as the center of the AI exposure, making it the primary tech proxy. Although AMD (NASDAQ:AMD) is closing in with its MI300 series AI chips, Nvidia already cornered the market.
2. AI’s Ambiguity
Despite text-to-text, text-to-image, and text-to-video generative demonstrations, it is yet to be determined to what extent AI will be disruptive. This gives ambiguity to AI’s total addressable market (TAM), pulling Nvidia into an unknown ceiling, ranging from $1.8 trillion by 2030 to $2.7 trillion by 2032.
The TAM ranges could differ even more as AI research breakthroughs reshape expectations, already hinted with OpenAI’s Sora. In other words, entire industries could be displaced (Hollywood) while new markets are created (robotaxis).
This makes it difficult to pin down AI’s market size. Conversely, Nvidia benefits from AI’s boundless potential to be integrated into every sector. At that point, the price-to-earnings ratio becomes less informative than it used to be.
3. Financial Demonstration
In the last four consecutive quarters, Nvidia has beat earnings per share (EPS) forecasts by double-digit surprises. The latest earnings report ending April showed revenue beaten by $1.5 billion, at a quarterly growth of 18% to $26 billion.
But what investors like more than beaten forecasts is the return of shareholder value. Nvidia obliged by increasing dividends from 4 cents to 10 cents per share. Moreover, the newly announced 10-for-1 forward stock split will go a long way in breaking the psychological barrier of perceived affordability.
At present $1,064 per share, the “missing the boat” mentality takes place among potential investors, which the stock split is heading to rectify. Afterward, the dividend payout is set at 1 cent per share.
In other words, just as Nvidia’s data center revenue grew by 23% quarterly, the company is making all the right moves to maintain its advantage and attract more capital. Nvidia kept up this financial demonstration by raising its Q2 FY25 guidance to $28 billion, beating consensus by $1.2 billion.
Nvidia’s Current Price Targets
According to 39 analyst inputs pulled by Nasdaq, NVDA stock remains a “strong buy.” The average NVDA price target is $1179.72 vs. the current $1,064 per share. The high ceiling is $1,400, while the low forecast is $870 per share.
Over the last 52 weeks, the average NVDA price has been $586.17, having reached its lowest point of $373.56 per share.
WSJ’s average NVDA price target is similar, at $1,174.41. The ceiling twelve months ahead is the same at $1,400, while the bottom is lower at $655 per share.
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Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
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