Major player in accelerated computing Nvidia (NASDAQ:NVDA) has become a Wall Street darling amid the artificial intelligence (AI) frenzy of 2023. The launch of OpenAI’s popular ChatGPT chatbot also highlighted the role of Nvidia’s graphics processing units (GPUs) in training and deployment of large language models (LLM), which drive generative AI applications like ChatGPT. Subsequently, many companies began to increasingly adopt generative AI technologies, further driving demand for the company’s AI chips. This has been a catalyst for Nvidia in 2023.
Nvidia’s stock price is up nearly 219% this year, thanks to its position as a leading GPU supplier in the ongoing AI revolution. Can the company continue this pace of share price growth and reach $1,000 per share in 2024? Let’s find out.
Impressive financial performance
Nvidia reported exceptional financial performance in its third fiscal quarter 2024 (ending October 29, 2023), with revenue increasing 206% year-over-year to $18.1 billion and a net income up 1,259% year over year to $9.2 billion.
The data center segment (which accounted for nearly 80% of Nvidia’s total revenue) saw revenue increase year-over-year by 279% to $14.5 billion. Additionally, while the company’s gaming segment was struggling with a excessive accumulation of GPU stocks Over the past year, it is now showing signs of recovery, in line with the overall PC market. In the third quarter, the company gaming company reported revenue of $2.86 billion, up 81% year-over-year.
Multiple opportunities based on AI
Unsurprisingly, the data center sector represents Nvidia’s biggest near-term opportunity. CEO Jensen Huang expects data centers to spend nearly 1 trillion dollars over the next four years, on upgrading general IT to an accelerated IT infrastructure, thereby equipping itself to handle complex AI workloads. With Nvidia accounting for nearly 91.4% of the enterprise GPU market (as of 2021), the company’s cutting-edge AI chips (H100 and upcoming H200) are well-positioned to take advantage of this opportunity.
Additionally, demand for Nvidia’s proprietary InfiniBand networking technology increased five-fold year-over-year in the third quarter to improve scale and performance while training LLMs. At the end of the third quarter, Nvidia has already crossed the $10 billion annualized mark for its networking solutions.
Rather than focusing solely on hardware, Nvidia has also made significant progress in its software strategy. The company expects its software, support and service offerings to generate approximately $1 billion in annual revenue in fiscal 2024. Nvidia expects its DGX Cloud service and software to AI enterprise are widely used to train and deploy LLMs.
Nvidia’s software-hardware ecosystem has helped it build a very loyal customer base.
A high valuation can be a deterrent
As of this writing, Nvidia is trading at a price-sales ratio (P/S) of 25.9, well above the semiconductor industry’s median valuation of 2.9. A few analysts also believe the company deserves this premium valuation due to its accelerated computing prowess, market-leading AI-driven data center offerings, and excellent financial numbers.
However, certain risks should not be ignored. Recent US restrictions on the export of advanced AI chips to China pose a significant challenge for the company. As several smaller chip players chase Nvidia’s nearly 90% share of China’s $7 billion chip market, the company’s revenue could take a hit in coming quarters.
Nvidia’s P/S ratio has also increased alongside the stock price in 2023. Therefore, with the current valuation assuming near-perfect execution for the company, the chances of future multiple expansion in the challenging geopolitical environment current seem thin.
So let’s assume that the average P/S ratio returns to Nvidia’s five-year average multiple of 22.58 (which is still quite high) in 2024. Analysts expect Nvidia’s revenue to be close to of $90 billion for fiscal year 2025 (ending January 31, 2025). . Multiplying these numbers gives us an estimate of Nvidia’s market cap of $2 trillion in 2024, less than double the company’s current market cap of $1.15 trillion. Assuming the number of shares remains constant, we can expect Nvidia’s stock price to reach around $820 in best-case scenarios.
So even with very optimistic calculations, Nvidia doesn’t look like it will hit $1,000 per share in 2024. But that doesn’t mean there isn’t growth potential for this stock. An upside price target of over $800 is also impressive, suggesting an upside of over 71% over the next 12 months.
As such, it makes sense for retail investors to consider buying a small stake in the stock, even at high levels.
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Manali Bhade has no position in any of the stocks mentioned. The Motley Fool Ranks and Recommends Nvidia. The Motley Fool has a disclosure policy.
Can Nvidia stock hit $1,000 in 2024? was originally published by The Motley Fool
