Nvidia Enjoyed “Magnificent” 2023 Stock Run, But AI Progress Could Slow in 2024
Nvidia’s stock price more than tripled in 2023, leading many analysts to tout it as one of the top-performing tech stocks of the year. The staggering rally was fueled largely by hype and optimism around Nvidia’s leadership position in artificial intelligence chips.
However, after such a parabolic rise, some analysts are warning investors not to get too excited about further near-term gains. Nvidia’s valuation now looks extremely stretched, even when factoring in its dominance in AI acceleration hardware.
As the new year kicks off, debate rages on whether Nvidia’s glory days are behind it or still ahead. Much depends on whether revolutionary progress in AI models like ChatGPT continues apace or hits pragmatic roadblocks.
Nvidia Was the Top Gainer in S&P 500 in 2023
Nvidia’s share price gained an astonishing 249% over the course of 2023. This performance beat out all other stocks in the S&P 500 index over the past year.
The rally lifted Nvidia’s market capitalization above $400 billion. As the following table shows, it is now the 7th most valuable U.S. public company:
| Company | Market Cap |
|---|---|
| Apple | $2.2 trillion |
| Microsoft | $1.8 trillion |
| Alphabet (Google) | $1.2 trillion |
| Amazon | $1 trillion |
| Tesla | $405 billion |
Nvidia | $403 billion |
| Berkshire Hathaway | $713 billion |
Driving these tremendous gains was runaway enthusiasm over Nvidia’s potential in powering transformative AI applications with its advanced GPUs and AI inference chips.
But such a vertical ascent can’t continue indefinitely. With Nvidia stock tripling in just one year, is it due for a correction in 2024 as reality sets in?
Bulls Bet on Nvidia’s AI Dominance, Bears Warn of Slowing Innovation
Nvidia bulls continue to bet on its commanding market position in bleeding edge chips specialized for AI workloads. The past year showcased how revolutionary AI models like chatbots can captivate public interest.
Nvidia’s hardware powers industry leaders in this space like Anthropic, which created the viral ChatGPT tool, as well as internal R&D at giants like Google, Microsoft and Meta. Its latest H100 data center GPU packs game-changing performance for training ever-larger AI models.
However, AI progress could hit harsh economic realities in the year ahead. The cost of developing advanced neural networks is skyrocketing, while monetization lags far behind.
For Nvidia stock to justify a further advance after its parabolic 2023 surge, another “Sputnik moment” like ChatGPT may be needed to reinvigorate hype. Absent that, slowing demand from cloud giants and startups alike could stall Nvidia’s epic stock run.
Analyst Timothy Arcuri: Bet on Nvidia’s “Unassailable” AI Lead in 2024
One of Nvidia’s biggest bulls, JPMorgan analyst Timothy Arcuri, recently reiterated his upbeat outlook for 2024. Arcuri believes Nvidia will only extend its lead in AI accelerators.
In a research note, the 5-star TipRanks analyst wrote: “the Computing opportunity remains vast and NVDA’s position increasingly unassailable.”
He sees Nvidia’s data center revenue growing another 50% in fiscal 2024 to $16 billion. Gaming sales are also poised to bounce back after the cryptocurrency mining boom/bust cycle.
Arcuri’s price target on the stock is $350, which actually implies a 15% downside from current levels around $400. However, he still rates Nvidia as his top pick for the coming year.
Analyst Mark Lipacis Sees 15% Further Upside to $450
Joining in the bull camp, Benchmark analyst Mark Lipacis sees scope for another 15% rally in Nvidia’s stock this year. His price target stands at $450.
Lipacis notes that Nvidia trades at a discounted 10x EV/sales ratio compared to hot AI startups like Anthropic and Cohere For AI at over 50x sales. This implies substantial valuation headroom even after its huge 2023 melt-up.
Nvidia CEO Jensen Huang said AI adoption will drive a new computing cycle over the next decade. Lipacis concurs, arguing that generative AI could have as big an impact as the mobile internet.
Analyst C.J. Muse Warns of AI “Trough of Disillusionment”
On the flip side, Evercore ISI analyst C.J. Muse just slapped a $195 price target on Nvidia stock along with a rare “Underperform” rating. This implies a 51% crash from current levels could be in store.
In his downgrade note, Muse wrote: “AI/deep learning is close to entering the dreaded trough of disillusionment in the hype cycle in our opinion.” Economic realities could hit hard in 2024.
Muse believes the total addressable market for training huge AI models is vastly smaller than Nvidia bulls presume. Cloud giants getting burned on AI investments could reverberate down to Nvidia’s data center sales.
And gaming weakness will continue until late 2024 at the earliest in Muse’s forecast. Other analysts also warn that the crypto-fueled boom of the last few years probably won’t repeat.
Outlook Hinges on Pace of AI Progress Amid Growing Reality Check
After its parabolic surge, Nvidia stock sits at a critical juncture at the start of 2024. The sustainability of its ascendance hinges largely on whether rapid-fire AI advancements can continue captivating public interest.
So far, each new unveiling of bigger, better AI chatbots sets off a media frenzy. Generative writing tools like ChatGPT enthral users with previously unfathomable conversational abilities.
But the hard economic truth beneath the surface is that developing and running these models costs a fortune, while profitable use cases remain uncertain. Cloud giants and AI startups alike now face growing investor skepticism amid a souring macro environment.
If “AI Winter 2.0” arrives with depressed demand and spending pullbacks, it could pour cold water on Nvidia’s stock as well. Data center weakness already rocked results in 2022.
On the other hand, if Anthropic, Cohere, Google or another player delivers a dazzling breakthrough that reinvigorates public optimism, Nvidia could resume its march higher.
For now, analysts average outlook is cautiously bullish. Consensus Wall Street price target for the coming year sits around $300. After tripling in 2023, consolidation or even a correction seems likely.
But in the long run, Nvidia still has a promising runway to power ever-larger, ever-smarter AI models. Its leadership position looks hard to assail. So once the hyper-growth premium in the stock unwind, patient investors could still benefit from buying pullbacks.
To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.
