Here's How We're Trading Nvidia Stock Heading Into GTC 2024 NASDAQ:NVDA
In a conference call with analysts, CEO Jensen Huang said that he felt very good about the company's supply situation, despite the chip shortage. While soaring chip demand is driving NVIDIA's record financial results, the company still has been concerned about possible shortages because it's a "fabless company" (see the FAQs section below). Instead, it designs chips and outsources the manufacturing to third-party companies to do the fabrication. NVIDIA could thus still be affected by the shortage if its third-party suppliers cannot manufacture chips fast enough to meet soaring demand. Perhaps the most consequential advance in Nvidia’s history was the 2006 launch of the company’s CUDA development platform.
- Perhaps the most consequential advance in Nvidia’s history was the 2006 launch of the company’s CUDA development platform.
- This will inadvertently reinforce demand for all of Nvidia’s data center solutions tailored for the AI revolution, spanning GPUs, accelerators, networking solutions to enable scalability, and full stack software.
- NVIDIA generated a net income of $4.3 billion on $16.7 of revenue in its 2021 fiscal year (FY), which ended Jan. 31, 2021.
- Nvidia stock price hit a then all time high of over $23 in January 2002 but Nvidia stock price dropped dramatically back down to single figures in the same year.
- Anticipated momentum in higher-margin data center sales will also reinforce the sustainability of Nvidia’s gross margin in the mid-70% range as guided by management.
Nvidia is trading right where it should be right now after normalizing for market’s favorable pricing of its F4Q24 outperformance and solid F1Q25 guidance. We have been tracking Nvidia’s valuation multiple on a relative basis to the broader semiconductor peer group over the past quarter. And Nvidia has consistently demonstrated a ~90% premium to the peer group trendline on a relative basis to its consensus growth estimate. Considering https://www.tradebot.online/ the consensus growth estimate of 81.5% for Nvidia’s FY 2025 revenue, the stock should trade at about 9.5x on the proxy trendline. And applying the 122% pre-earnings multiple premium to the proxy trendline result would yield an estimated P/S multiple of 21.1x for Nvidia expected F1Q25 close. By applying 21.1x to Nvidia’s current consensus FY 2025 revenue estimate of $110.6 billion, the stock should trade at about $938 apiece.
The platform allowed the company’s GPUs to be used for more than rendering graphics, and would eventually prove to be one of Nvidia’s biggest advantages in the explosively growing world of artificial intelligence and machine learning. On January 22, 1999, the company holds its initial public offering on the Nasdaq exchange the Nvidia stock price was $12 a share. Just two years after going public, Nvidia was added the the S&P 500 in 2001. The company was the fastest every semiconductor company to reach $1 billion in revenue. In the wake of the surge in Nvidia's stock, the company's valuation multiples have become a bit extended.
This represents modest upside from the stock’s current levels, despite expectations for another leg up in Nvidia’s forward estimates post-F1Q25 earnings release. However, if a 122% multiple premium is applied to the semiconductor peer group’s current multiple trendline, the resulting P/S ratio of 22.4x would yield an estimated price of close to $1,000 apiece. There remains potential for a further upsurge of this extent approaching Nvidia’s next earnings release. Our current revenue growth estimates for FY 2025 through FY 2027 outperforms consensus expectations by a similar extent to what was observed post-F4Q24 earnings release. This accordingly corroborates the potential for another upward deviation in Nvidia’s valuation multiple premium to the broader semiconductor peer group leading up to its next earnings, which we expect to be another upside surprise.
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But momentum is expected to pick up gradually post-GTC, and more prominently approaching the F1Q25 period-end and on the heels of said earnings release. This accordingly underscores further expansion in the market for AI accelerators and GPUs, which Nvidia thrives in. And continued resilience in Nvidia’s core demand environment is corroborated by the elevated level of ongoing and impending investments into the nascent technology. For instance, OpenAI’s Sam Altman has been pursuing an ambitious plan to build a $7 trillion venture for the development of artificial general intelligence that will outsmart humans. Said investment plans are similarly echoed by SoftBank’s Masayoshi Son’s consideration of a $100 billion AI chip venture. Not only are sales skyrocketing, but Nvidia's commanding position in the graphics processing unit (GPU) and data center business has provided the company with unparalleled pricing power.
NVIDIA - 25 Year Stock Price History NVDA
Anticipated momentum in higher-margin data center sales will also reinforce the sustainability of Nvidia’s gross margin in the mid-70% range as guided by management. This accordingly provides incremental durability to its valuation premium to peers over the next year. As mentioned earlier, Nvidia exhibits company-specific tailwinds that corroborate continued growth outperformance in the near-term. They include improvements to GPU supply to fill backlogged demand and favorable H200 pricing with shipment ramp-up. Nvidia’s key customers across the cloud computing and enterprise segments have also echoed resilient capex and R&D prioritization within the foreseeable future for AI developments during the latest earnings season. This will inadvertently reinforce demand for supporting infrastructure, which includes AI chips for accelerated computing data centers and full stack Nvidia software.
Alternatively, a flatter peer group trendline like that observed in mid-February could mark a fair industry bear case in the near-term. Based on the foregoing analysis, we believe AI momentum should remain intact and resilient in the near-term. Thus, any prolonged moderation should not fall far from the bottom observed in recent months. By applying a 122% multiple premium to this baseline, the resulting P/S ratio is at about 9.3x, which would yield an estimated price of about $920. An exception was observed in February, shortly after Nvidia finished the fiscal fourth quarter.
With Nvidia stock hovering in the vicinity of the all-time high it set earlier this month, some investors may be wondering if they've missed out on the chance to profit. Given all the moves Nvidia is making and the ways it's setting itself up for long-term growth, now is as lucrative a time as ever to scoop up some shares. NVIDIA currently pays a quarterly cash dividend of $0.04 per share, according to the company's Q3 FY 2022 earnings press release dated Nov. 17, 2021. When, in 2004, the SLI connection standard was released, Nvidia saw a huge bump in the processing power it could achieve on a single machine. It was after 2005 when Nvidia stock price started generating interest and attention but still faced peaks and troughs. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.
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Moreover, Nvidia's forward price-to-earnings (P/E) ratio of 37 is nearly double that of the S&P 500. Euphoria surrounding the possibilities of artificial intelligence (AI) technology is pushing the stock market to record levels. While there are many companies shaping the AI narrative, I would argue that Nvidia (NVDA -0.12%) is cast in the lead role. It operates within the semiconductor industry and some of its main rivals include, Intel Corp. (INTC), Advanced Micro Devices Inc. (AMD), and Xilinx Inc. (XLNX). NVIDIA generated a net income of $4.3 billion on $16.7 of revenue in its 2021 fiscal year (FY), which ended Jan. 31, 2021.
This has helped it expand its margins materially -- improvements that flow directly to the bottom line. The company's breakthroughs in compute networking are impacting a multitude of AI applications, including machine learning, generative AI, and large language models (LLMs). Nvidia is currently the nucleus of most systems powering modern AI tools, and investors have been cheering on the stock.
On Sept. 13, 2020, NVIDIA announced that it had agreed to acquire Arm Ltd., a U.K.-based semiconductor and software company specializing in AI, from Japan-based SoftBank Group Corp. (SFTBY) and the SoftBank Vision Fund for $40 billion. NVIDIA said that it expected the transaction to close in approximately 18 months. But the deal has come under intense scrutiny from regulators worldwide and is thus unlikely to be completed within the original timeframe, if at all. Taken together, we believe any dips below the $900-level for Nvidia leading up to its next earnings release would represent a buy opportunity for further upside potential in the near-term. The annual keynote is typically accompanied by volatility in the stock.
NVIDIA was founded in 1993 by current Chief Executive Officer (CEO) Jensen Huang, Chris Malachowsky, and Curtis Priem. The company introduced the GeForce 256 in 1999, calling it the world's first GPU. In January of that same year, NVIDIA went public through an initial public offering (IPO). Today, the company's GPUs power many of the world's fastest supercomputers. Despite its ultra-premium valuation, I see Nvidia's stock as a solid opportunity for long-term investors. At a macro level, heavy secular tailwinds fuel AI budgets, and I don't expect those to abate anytime soon.
