Nvidia (NVDA 3.46%) has been one of the most remarkable stocks since the hype around artificial intelligence (AI) took the market by storm. Since the beginning of last year, shares of the advanced semiconductor company are up nearly 400%.
One Wall Street analyst thinks there's still plenty of upside for Nvidia, too. Ananda Baruah from Loop Capital has initiated coverage with a buy rating and $1,200 price target. That's the highest of all analysts covering the stock, and it represents a 65% gain from where shares trade as of this writing.
And remember Nvidia was trading below $120 per share as recently as Oct. 2022.
What makes a stock jump fivefold in just over a year?
The explosion in spending on high-end AI chips that boost computing power hasn't just been a surprise to analysts and investors but to the company itself.
In May 2023, Nvidia beat its fiscal Q1 revenue guidance by about $700 million. But that was just the beginning: Over the next two quarters, actual revenue exceeded management's guidance by at least $2 billion each time.
Demand for AI chips has Nvidia's data center business growing faster than the company itself can keep up with. All eyes will be on the fiscal 2024 year-end report due Feb. 21 to see if the company once again beats what's already a record $20 billion quarterly revenue outlook.
The highest price target on Wall Street
Loop Capital thinks the company will continue to surprise investors as Nvidia sells all of the advanced chips it can make for several more years. The firm's $1,200 price target implies a trailing-12-month price-to-earnings (P/E) ratio of 158.
But align Loop's forward-looking price target and Nvidia's earnings estimates, and that valuation drops quickly. Analysts expect the company to report $20.41 in earnings per share in fiscal 2025, giving the company a forward P/E ratio of 59. That's still a premium to the market, but it's a much more reasonable price tag for long-term investors who want a piece of this AI leader.
