Nvidia's (NVDA 3.17%) latest quarterly results proved that artificial intelligence (AI) is more than just hype. Robust demand for its chips, which help enable AI, suggests that companies are pouring huge amounts of money into this space and paving the way for the chipmaker's long-term growth.
Healthy AI-driven demand explains why Nvidia expects its revenue for the second quarter of fiscal 2024 to jump a whopping 64% year over year to $11 billion. That would be a massive improvement compared to the 13% year-over-year revenue decline Nvidia saw in fiscal Q1. It is also worth noting that Nvidia's revenue guidance for the current quarter is miles ahead of the $7.2 billion consensus estimate.
NASDAQ: NVDA
Key Data Points
The company's outstanding guidance has led Wall Street analysts to substantially raise price targets on Nvidia stock. Let's take a closer look at the recent Nvidia price target action before determining the gains investors might expect from Nvidia in the long run.
Nvidia price targets have been upgraded big time
Nvidia stock has been the subject of multiple price target upgrades following its latest report. Bernstein analyst Stacy Rasgon has increased his Nvidia price target to $475 from $300, stating that the chipmaker is the best way to play the AI boom. Blayne Curtis of Barclays now has a $500 price target on the stock, up from $275 earlier. He believes that Nvidia is at the beginning of the AI wave and is strongly positioned to capture this huge opportunity.
Meanwhile, JPMorgan's Harlan Sur has doubled his price target to $500, pointing toward a 28% upside from Nvidia's closing price on May 26. However, the likes of HSBC and Rosenblatt are way more optimistic about Nvidia's performance, which is evident from the $600 price targets they currently have on the stock. These Street-high price targets would translate into a 54% upside from current levels.
But it won't be surprising to see Nvidia stock delivering better-than-expected gains given the multiple catalysts it is sitting on.
Nvidia stock is built for more upside
Shares of Nvidia have jumped 166% in 2023. The terrific rally has brought the company's price-to-earnings ratio to 202 and its sales multiple to 37. But investors with an appetite for risk and those who are looking to buy a growth stock now can still consider adding Nvidia to their portfolios, as the company's top and bottom lines are set to grow rapidly.
|
Fiscal Year |
Estimated Revenue |
YOY Growth |
Estimated EPS |
YOY Growth |
|---|---|---|---|---|
|
2024 |
$42.9 billion |
59% |
$7.68 |
130% |
|
2025 |
$50.6 billion |
18% |
$9.61 |
25% |
|
2026 |
$62.7 billion |
24% |
$12.23 |
27% |
Data source: YCharts. YOY = year over year. EPS = earnings per share.
It is also worth noting that these estimates have shot up rapidly of late.
NVDA Revenue Estimates for Current Fiscal Year data by YCharts
More than 30 analysts covering Nvidia stock have raised their earnings-per-share estimates for fiscal years 2024 and 2025 in the past month. The company was expected to deliver $4.53 per share in earnings, according to analysts' estimates a month ago. That estimate stands much higher now, as the table above indicates.
So, it won't be surprising to see Nvidia's fiscal 2026 earnings exceeding analysts' expectations. But even if the company delivers $12.23 per share in earnings (which the company is currently expected to deliver) and the stock trades at its five-year average forward earnings multiple of 40.6 after three years, its stock price could hit $496. That's close to what the likes of Barclays and JPMorgan are predicting.
But there are a few simple reasons why Nvidia could command a richer valuation after three years and deliver faster earnings growth.
First, the AI wave is just getting started. Third-party estimates forecast that the demand for chips that accelerate AI workloads in data centers and servers could increase at an annual pace of 39% through 2031, generating a whopping $332 billion in annual revenue. For comparison, annual sales of AI accelerators stood at just under $15 billion in 2021.
Nvidia is leaving no stone unturned to corner this massive opportunity. The company is already the dominant player in the data center GPU market with a share of more than 90%. It is now set to enter the server CPU (central processing unit) space as well with its Grace processors, which are currently sampling with customers and will power a supercomputer at the University of Bristol. Nvidia's entry into the data center CPU market is going to unlock a massive revenue opportunity for the company and substantially boost its business.
Second, Nvidia's gaming business is regaining its mojo. Although the segment's revenue was down 38% year over year last quarter to $2.24 billion, it increased 22% on a quarter-over-quarter basis. Investors should note that Nvidia's gaming business has been recovering recently thanks to the launch of new graphics cards. That recovery could gain momentum -- the company recently announced the release of pocket-friendly graphics cards that could encourage more gamers to upgrade to its latest gaming GPUs.
Third, Nvidia's automotive business could turn out to be its next notable catalyst. The company's revenue from this segment jumped 114% year over year to a record $296 million last quarter. Although it still accounts for a small part of the company's top line, investors shouldn't forget that Nvidia is sitting on an automotive revenue pipeline worth $14 billion, which it expects to realize over the next six years. Nvidia's automotive revenue pipeline was worth $11 billion a year ago, suggesting that the company is gaining impressive traction in this area.
Assuming Nvidia's earnings hit $15 per share at the end of fiscal 2026 and the company trades at 50 times forward earnings after three years, which is where it is trading right now, its stock price could jump to $750. That would be nearly double the company's current stock price, which is why investors looking to buy a top AI stock right now should buy Nvidia before it becomes even more expensive.
