Nvidia stock had a wild 2023, mainly as a result of it's AI (LLM) business and it's upgraded technology for cloud computing. Recent investors are paying for the companies success, with the company evaluated at 1.35 trillion dollars. We think this stock has further upside. Here's why.
Staying the Course with Strong Initiatives
Nvidia's strategic move involves staying the course with its latest initiatives in videogaming and automotive technology, unveiled ahead of the CES trade show. The focus on generative artificial intelligence (AI) through new GeForce graphic processors showcases the company's commitment to innovation.
Data-Center Business Driving Growth
The explosive growth of Nvidia's data-center business is a key factor contributing to its market value tripling. With booming demand for specialized systems powering genAI capabilities, Nvidia's data-center business is expected to reach nearly $78 billion in annual sales in fiscal 2025, a substantial increase from $15 billion two years prior.
Valuation Challenges and Investor Focus
Despite being valued at nearly $1.3 trillion, more than twice its closest chip-making peer, Nvidia faces the challenge of valuation. However, Wall Street seems to be honing in on the bottom line and cash reserves. The stock currently trades at about 26 times projected per-share earnings, near its lowest range in at least five years and below its average of 40 times. Analysts project strong revenue growth, with a 55% increase expected in the next fiscal year after a remarkable 118% surge in the soon-to-end year.
Booming Bottom Line and Cash Flow
Nvidia's financial performance is a standout feature. The company's adjusted operating income surged to $22.4 billion in the first nine months of the current fiscal year, compared with about $5 billion in the same period last year. Wall Street foresees annual adjusted per-share earnings exceeding $20 in fiscal 2025, more than six times the earnings in the latest fiscal year. This impressive bottom line has paradoxically made Nvidia's stock appear cheaper, trading at around 26 times projected per-share earnings.
Competitive Pricing and Free Cash Flow
Stacy Rasgon of Bernstein notes that Nvidia is trading at a discount to the peer PHLX Semiconductor Index, making it the cheapest AI play. Nvidia's stock price surge over the past year contrasts with its competitive pricing, trading near its lowest range in at least five years.
Cash Flow Strength and Future Projections
Nvidia is generating substantial free cash flow, tying with Broadcom as the highest in the chip sector at $17.5 billion for the past four quarters. Analysts project that Nvidia will produce $100 billion in free cash flow over the 2024-25 calendar years. About a third of this is expected to go towards share buybacks, with the remaining amount available for pursuing growth options, including mergers and acquisitions.
Potential Challenges and Geopolitical Considerations
While Nvidia faces challenges in a tech M&A market, particularly in a geopolitical minefield for chip companies, domestic AI demand is expected to keep the order book robust. The recent concern about Chinese companies' interest in downgraded chips appears to be offset by strong domestic demand.
Summary: Why Nvidia is a Buy
In the landscape of hot stock picks, Nvidia stands out as a potential buy despite its high price. Numerical evidence, including strong financials, competitive pricing, and robust projections, suggests that Nvidia has room for further growth. The company's strategic focus on generative AI and its ability to navigate challenges make it a stock worth considering for investors eyeing long-term gains in the dynamic world of tech investments.
Want More? Get AI Stock Pick Reports.
Have a question? Contact Us.
"Will There Be a Bull Market in 2024?" Yes, despite the sluggish start, evidence suggests a bullish inclination for 2024. Market dynamics, historical trends, and expert sentiments collectively point towards an optimistic outlook for the remainder of the year.
Get Stock Picks & Updates. Join Our Reddit Discussion Room.
Comentários