Nvidia’s share price has hit multiple all-time highs over the past week, driven by strong earnings results and optimism around the company’s leadership position in artificial intelligence (AI) technology. The stock closed at a record $305 on Friday, capping a week where it gained over 20%.
Strong Earnings Reinforce Bullish Sentiment
The Santa Clara-based chipmaker reported better-than-expected fiscal fourth quarter revenue last month, with sales in its critical data center business surging 11% year-over-year. Full-year revenue for 2023 also hit a company record at $26.9 billion.
Nvidia has established clear dominance in AI accelerators, the specialized chips that power advanced computing workloads like machine learning. Its latest data center graphics processing units (GPUs) are seeing surging demand from hyperscale cloud companies as well as enterprise players.
“Nvidia reported strong earnings, reinforcing its leadership in AI and showing continued strength in its core gaming franchise,” said Daniel Ives, an analyst at Wedbush Securities. “The company is in an enviable position heading into 2024 and remains our favorite large-cap cloud play.”
Growth Potential from AI “Larger Than Expected”
Wall Street analysts have raised their expectations for Nvidia after assessing the size of the total addressable AI market.
“We now believe Nvidia’s Data Center AI opportunity is larger than we had previously modeled, perhaps even dramatically so,” said Stacy Rasgon, a senior research analyst at Bernstein.
Rasgon sees Nvidia’s data center revenue potentially reaching $100 billion by 2030 solely from training and inference – key components of deep learning models. Adding in contributions from recommender systems, analytics, and other domains would take the figure even higher.
Fellow analysts at Bank of America now forecast Nvidia’s calendar 2024 sales growing 46% year-over-year to $37 billion. They estimate earnings per share of $8.43, a 52% jump from 2023.
Nvidia Financial Estimates
| Metric | 2023 Value | 2024 Estimate | 2024 Year-Over-Year Growth |
|---|---|---|---|
| Revenue | $26.9 billion | $37 billion | +46% |
| Earnings Per Share | $5.56 | $8.43 | +52% |
“We expect Nvidia’s AI dominance to continue over the next few years as large language models drive compute demand from hyperscalers,” said Bank of America’s Vivek Arya in a research note.
New Product Launches Add Growth Tailwinds
Nvidia recently introduced Hopper, its latest architecture focused on accelerating giant AI models. The H100 GPU packs a record 80 billion transistors and doubles the performance of its predecessor.
Major cloud providers such as Amazon Web Services and Microsoft Azure are lining up to offer the new accelerator to their customers later this year. Those hosting deals should help drive additional data center revenue.
The company is also prepping the launch of its Grace CPU Superchips in the first half of 2024. The Arm-based processors aim to boost performance for large language models like ChatGPT.
“We believe Grace CPU represents higher ASP and margin sequential growth potential for Data Center starting in 2H/CY24,” commented Arya.
On the gaming front, Nvidia’s new GeForce RTX 40 Series graphics cards are seeing strong early demand from PC gamers. The high-end models retail for over $1,500, so even modest unit volumes can quickly add up to chunky revenue.
The launches of Hopper, Grace, and the RTX 40 chips should give Nvidia’s financial results tailwinds through 2024 and beyond.
Competitive Advantages Secure Leadership
Nvidia spends over $3 billion on R&D each year, giving it a pipelines of new technologies ahead of rivals. Its cumulative investment of $18 billion into various computing platforms has also built an ecosystem advantage.
The chip designer has fostered deep partnerships across industries to co-optimize software and workflows for its hardware. For example, all major automotive companies utilize Nvidia DRIVE for autonomous driving development.
“Nvidia’s investment in AI software continues to widen the company’s moat against competitors,” said Asit Sharma, a Motley Fool analyst. “It will be extremely difficult for advanced computing rivals to replicate Nvidia’s combination of cutting-edge hardware and extensive software ecosystem.”
That network effect gives Nvidia pricing power and customer stickiness, fueling margins near 65%. New CEO Jen-Hsun Huang will likely keep pouring resources into both R&D and partnerships. Maintaining the competitive edge remains critical despite already leading the AI acceleration space.
While rivals like AMD, Intel, and startups like Cerebras are chasing the same market, they have yet to demonstrate matching innovation cadences so far. And with AI workloads still in early phases of adoption, Nvidia looks poised to continue capturing the lion’s share of growth.
Valuation Concerns Cool Investor Sentiment
With the parabolic price action witnessed recently, some Wall Street analysts are starting to express concerns around excessive investor optimism.
Despite raised forecasts, Bank of America keeps a Neutral rating on Nvidia stock based primarily on the lofty valuation. Even after the recent record highs, shares still trade at over 11x expected 2024 sales.
“While we expect Nvidia to deliver strong AI-related growth, these expectations appear increasingly priced into the stock,” explained Arya.
Others point out the last time Nvidia sported such elevated multiples, a considerable correction followed. Back in late 2018, the stock changed hands for more than 12x forward sales estimates right before plunging nearly 60% over the next year.
“Investors considering Nvidia around these levels must weigh the potential for history to repeat with another sharp decline,” noted Billy Duberstein, a top contributor at The Motley Fool.
Outlook Remains Strong Despite High Valuation
While the frothy valuation carries significant downside risks, analysts generally remain bullish on growth prospects for Nvidia – especially in AI.
“Nvidia sits at the forefront of some of technology’s most important mega-trends over the next decade,” said Bernstein’s Rasgon. “It retains excellent visibility and improving competitive positions.”
Rasgon rates the stock at Outperform with a $400 price target, which would mean 33% upside from current levels.
Ives at Wedbush also maintains bullish expectations: “While the stock has been on a meteoric rise over the last year, we believe there is significant growth still ahead as this AI arms race heats up and Nvidia continues to distance themselves from the competition.”
If Nvidia can deliver on the expanding market opportunities ahead, it may continue generating outsized returns for investors even amidst lofty valuations. With AI adoption poised to accelerate globally across sectors in coming years, the company looks ready to capitalize on rising demand for its hardware and software offerings.
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