Shares of Nvidia (NVDA +1.63%) have crushed the stock market handsomely over the past year, gaining 183% as of this writing, compared to the Nasdaq Composite index's gains of just 12% during the same period. Investors can expect this red-hot run to continue in the coming year as well.
According to a consensus estimate of 44 analysts covering Nvidia, the stock has a Street-high price target of $1,100 for the next 12 months. That would be 140% higher than Nvidia's current stock price. The semiconductor specialist should be capable of hitting -- or even exceeding that target -- considering the massive artificial intelligence (AI)-fueled demand for its data center graphics cards.
Let's try and find out how much upside Nvidia investors can expect over the next year.
NASDAQ: NVDA
Key Data Points
AI has added jet fuel to Nvidia's prospects
Nvidia announced its fiscal 2024 second-quarter results (for the three months ended July 30) on Aug. 23. The numbers crushed Wall Street's expectations -- which wasn't surprising, as companies have been making a beeline for Nvidia's graphics processing units (GPUs) to train AI models and run inference applications.
The chip giant's revenue doubled year over year to $13.5 billion, driven by record data center revenue of $10.3 billion during the quarter. It is worth noting that Nvidia's data center revenue increased a whopping 171% from the year-ago period.
Even better, Nvidia's non-GAAP earnings surged a whopping 429% from the year-ago period to $2.70 per share last quarter, driven by a 25 percentage point increase in the gross margin to 71.2%. That incredible surge in the company's bottom line can be attributed to the immense pricing power the company enjoys in AI chips.
Analysts would have settled for $2.09 per share in adjusted earnings on $11.2 billion in revenue. But Nvidia did way better thanks to the rapid adoption of its A100 and H100 data center systems by cloud service providers (CSPs) for powering generative AI applications such as chatbots. CFO Colette Kress remarked on the latest earnings conference call:
Data center compute revenue nearly tripled year on year driven primarily by accelerating demand from cloud service providers and large consumer internet companies for our HGX platform, the engine of generative and large language models.
She added that the likes of Amazon Web Services, Alphabet's Google Cloud, Microsoft Azure, Oracle, and Meta Platforms "are deploying in-volume HGX systems based on our Hopper and Ampere architecture tensor core GPUs." Nvidia's guidance suggests that its terrific momentum is here to stay.
The company anticipates $16 billion in revenue in the third quarter of fiscal 2024, along with an adjusted gross margin of 72.5%. Analysts were looking for $12.5 billion in revenue. Nvidia's forecast points toward a 171% surge in revenue, while its bottom-line growth should be eye-popping as well considering that the company's adjusted gross margin stood at 56% in the year-ago period.
More importantly, Nvidia management points out that it has solid revenue visibility going forward. According to Kress:
Demand for our data center platform for AI is tremendous and broad-based across industries and customers. Our demand visibility extends into next year. Our supply over the next several quarters will continue to ramp as we lower cycle times and work with our supply partners to add capacity.
The above statement makes it clear that Nvidia's AI-driven growth is here to stay. That's not surprising, as the demand for AI chips could grow at an annual pace of 29% through 2030 and generate $304 billion in annual revenue, according to Next Move Strategy Consulting. With Nvidia reportedly commanding an estimated 80% to 95% of this market, there is a solid chance that the company's outstanding growth is here to stay for a long time.
How much upside can investors expect in the next year?
Nvidia is expected to finish the current fiscal year (which will end in January 2024) with earnings of $10.43 per share, which would be a massive jump over the prior year's figure of $3.34 per share. Its revenue is expected to jump to $52 billion from $27 billion in fiscal 2023.
Assuming Nvidia does achieve Wall Street's bottom-line estimates in the ongoing fiscal year and maintains its price-to-earnings ratio of 111 -- which it could in light of its outstanding growth -- the company's stock price could jump to $1,154 within the next year.
So investors looking to buy an AI stock with terrific upside potential can still consider Nvidia for their portfolios, as this chip giant is at the beginning of a massive growth curve.
