The technology sector is heavily beaten down this year. The Nasdaq-100 index has fallen 30% year to date, placing it firmly in bear market territory as investors reprice their expectations for growth amid rapidly rising interest rates and geopolitical tensions.
When the market is this volatile, it can be hard to separate the high-quality opportunities from the stocks that could suffer even steeper losses. But taking note of Wall Street's recommendations can sometimes be a guiding light in difficult times, especially when they put forward a company with strong growth and big profits that is operating in one of the hottest industries in the world.
Semiconductor powerhouse Nvidia (NVDA -10.01%) ticks all the boxes, and here's why one Wall Street investment firm thinks its stock price could more than double in value from here.
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Transitioning beyond hardware
The semiconductor industry is now one of the most important in the world. More of the economy continues to shift online, which means advanced computer chips are required to power data centers in addition to a growing number of devices consumers use to access the digital realm.
Gaming and data center remain Nvidia's two largest segments, accounting for 88% of its revenue in the recent first quarter of fiscal 2023 (which ended May 1). The data center segment is of particular note because it represents a piece of infrastructure that not only stores information, but can also analyze it to help companies extract valuable insights.
Thanks to advancements in chip technology like Nvidia's Grace architecture, enormous volumes of data can be processed and used to train artificial intelligence, and also to render digital twins of real-world assets. These digital twins can be built with Nvidia's Omniverse platform, a 3D rendering tool that is currently used by giants like Amazon to mimic its real-life fulfillment centers with millimeter accuracy. It helps Amazon carefully plan physical adjustments before spending time and money reconfiguring the actual floor plan.
That's important because Nvidia no longer wants to be known as a chipmaker alone, but also as a platform computing company. Its future extends beyond hardware. In another example, it has developed self-driving technology so powerful that it's being adopted by 35 different car manufacturers and will hit the road as soon as 2024. It's an industry that could be worth $2.1 trillion by 2030 -- five times the size of Nvidia's current market valuation, yet it's only one small area the company operates in right now.
A long-term growth story
Nvidia is a financial powerhouse and is experiencing a notable upswing in its annual revenue and earnings per share results. Fiscal 2022 was the company's biggest year ever, and it's set to back that up with an even stronger result in the current fiscal 2023, according to analysts' estimates. However, because the numbers continue to balloon, the rate of growth is expected to slow in fiscal 2023 compared to fiscal 2022.
Nvidia's annual non-GAAP earnings per share, which removes one-off costs and share-based compensation, continues to set all-time highs. And in the first quarter of fiscal 2023, the metric jumped 49% compared to the year-ago period. That was after deducting a one-time, $1.35 billion charge from its failed acquisition of SoftBank's Arm holdings due to regulatory challenges.
Yet as mentioned, Nvidia might be on the cusp of a new phase of growth in the coming decade from its smaller segments, which are still in their infancy compared to its booming gaming and data center businesses.
Wall Street is on board
Given Nvidia's prospects, it's not surprising that Wall Street investment analysts maintain a bullish tone even in the face of the broader sell-off in the technology sector, which has helped push the stock down by 51% from its all-time high. Of the 47 analysts who cover Nvidia, just one recommends selling.
But one firm, in particular, Tigress Financial Partners, thinks the stock price could soar to $410, which represents 141% upside from where it trades today.
Yet as Nvidia continues to drive advancements in the most exciting areas of the technology sector, there's an argument to be made that Tigress' price target might actually be conservative over the long term.
