Artificial intelligence chip wunderkind Nvidia Corporation (NVDA 1.75%) is closing in fast on the largest stocks on the market. Yes, a company in the highly cyclical semiconductor sector is now being valued at a market cap similar to those of much steadier, and usually high-margin software businesses.
One analyst suggests this situation may not be as outlandish as it looks.
Upgrading Nvidia
On Wednesday, investment bank Susquehanna raised its price target on Nvidia stock by 36%, to $850 a share, ahead of next week's earnings report for fiscal year 2024.
Consensus forecasts have Nvidia more than quintupling its Q4 2022 earnings in Q4 2023. Profits should come in at $4.55 per share. That's even better than the forecast for Nvidia's sales, which are expected to "only" triple to $20.3 billion.
Susquehanna analyst Christopher Rolland expects the AI superstar to exceed even these lofty expectations in the Feb. 21 report. Rolland sees Nvidia "beating" by at least $1.5 billion in quarterly sales, reporting $99 billion in sales for its fiscal 2025.
How to value Nvidia stock
For Nvidia investors, that sounds like good news. But is it good enough to justify more than the current price of $730 per Nvidia share? Yes, perhaps.
If Rolland is right about Nvidia generating $99 billion in sales this year, that's more than twice the company's $45.9 billion in trailing revenue -- more than doubling. And earnings could grow even faster, as Nvidia is raising prices on its chips.
Granted, Nvidia stock looks expensive at 95 times earnings. But by meeting these targets, Nvidia's PEG ratio will actually fall below 1.0, the usual rule of thumb for identifying a value stock.
Yes, indeed. Even at $1.8 trillion in market cap, Nvidia could be a value stock.
