Nvidia (NVDA 0.74%) stock set the market on fire in 2023 with eye-popping gains of 164% so far this year thanks to the bustling demand for its chips designed specifically for artificial intelligence (AI) servers. The chipmaker was able to deliver outstanding guidance for the second quarter of fiscal 2024 (ending July 31, 2023) when it released its quarterly results last month.
The bad news for investors looking to buy Nvidia stock right now is that it is too expensive. The good news, however, is that shares of the semiconductor bellwether could continue soaring and deliver more upside over the next year for multiple reasons.
Let's see where investors can expect Nvidia stock to be a year from now.
NASDAQ: NVDA
Key Data Points
Faster growth in Nvidia's revenue and earnings should lead to red-hot gains
According to an estimate of 43 analysts covering Nvidia, the stock has a 12-month median price target of $450. That represents a gain of about 16% from current levels. However, the Street-high price target of $600 for the next year suggests that Nvidia stock could rise roughly 55% from current levels.
The good part is that Nvidia seems to be in a position to deliver such a terrific upside. While the company's revenue in the first quarter of fiscal 2024 (for the three months ended April 30, 2023) was down 13% year over year to $7.2 billion, it is projecting a massive turnaround in the current quarter. Nvidia's revenue guidance of $11 billion for fiscal Q2 points toward a 64% year-over-year jump.
Analysts have also been quick to increase their revenue and earnings estimates. The company is now expected to deliver $42.7 billion in revenue in fiscal 2024, a 58% increase over the previous fiscal year. Adjusted earnings are expected to more than double from $3.34 per share in fiscal 2023 to $7.75 per share in the ongoing fiscal year.
NVDA Revenue Estimates for Current Fiscal Year data by YCharts.
This massive acceleration in Nvidia's bottom line in fiscal 2024 explains why the company is trading at 84 times forward earnings as compared to its trailing price-to-earnings ratio of 218. There's no denying that the forward earnings ratio is extremely rich, but the massive acceleration in Nvidia's growth and its position at the beginning of a huge AI-driven growth opportunity indicate that it deserves to trade at a rich multiple.
So if Nvidia trades at 84 times earnings after a year and its earnings increase to $7.75 per share at the end of fiscal 2024, its stock price could increase to $651. That would be a 68% jump from Nvidia's current stock price, suggesting the chipmaker's gains could exceed even the higher end of Wall Street's expectations.
Why the chipmaker is primed to deliver such impressive upside
Now that we have seen how high Nvidia stock could surge over the next year, it's worth looking at the growth drivers that will generate such gains. The first is, no doubt, artificial intelligence.
Market research firm TrendForce estimates that shipments of AI chips are slated to jump an impressive 46% this year. More specifically, shipments of AI servers equipped with central processing units (CPUs), graphics processing units (GPUs), application-specific integrated circuits (ASICs), and field-programmable gate arrays (FPGAs) are expected to jump 38% this year.
Nvidia's GPUs are the dominant chip type in AI servers, with a market share of 60% to 70%. Also, TrendForce estimates that Nvidia's new H100 and H800 data center chips, which command a 2 to 2.5x premium over its earlier A100 and A800 models, will witness stronger demand in the second half of the year. As a result, Nvidia's data center business should continue to fire on all cylinders and give the company's top and bottom lines a big boost over the next year.
Meanwhile, the gaming business, which has struggled in recent quarters on account of weak personal computer (PC) sales, is now finding its feet. Nvidia saw a 22% sequential increase in gaming revenue last quarter, as the demand for its latest GPUs remained solid among both desktop and notebook customers. Management pointed out on the earnings call that GPU "demand was solid and consistent with seasonality, demonstrating resilience against a challenging consumer spending backdrop."
Now that Nvidia has announced aggressively priced graphics cards to lure in more customers and encourage existing users to upgrade to its RTX class cards, the gaming business will likely sustain its momentum over the next year and beyond. Mordor Intelligence expects the gaming GPU market to clock annual growth of 15% over the next five years, further suggesting the bad days of Nvidia's gaming business could be over.
Throw in the other catalysts in Nvidia's omniverse and automotive businesses, and it is easy to see that there are multiple reasons this tech stock is built for more upside over the next year and in the long run.
