When it comes to the artificial intelligence (AI) narrative, "Magnificent Seven" stocks Microsoft, Apple, Amazon, Alphabet, Meta Platforms, Tesla, and Nvidia (NVDA 6.18%) always seem to find their names in the spotlight.
Among this peer set, Nvidia might stand out the most. Demand for the company's A100 and H100 semiconductor chips is off the charts, and its data center services are leaving competition in the dust. Investors cheered Nvidia stock in 2023 as the company set record after record in each quarterly report.
But even with shares surging 239% last year, many Wall Street analysts think the company's best days are ahead. However, among the long line of bullish analyst calls, one sticks out from the pack.
Hans Mosesmann of Rosenblatt Securities recently placed a $1,400 price target on Nvidia stock -- implying nearly 60% upside.
After such a meteoric rise, can Nvidia stock really keep up the momentum? I think it can. Let's dive into all of the exciting catalysts that could help fuel Nvidia's growth to new heights.
Nvidia has mountains of cash
Last year Nvidia generated $60.9 billion of revenue, up 126% year over year. The majority of this growth stemmed from the company's compute and networking division, which houses Nvidia's data center operation.
While the revenue growth is staggering, there is much more to the picture. Nvidia's breakthroughs in semiconductors are widely perceived to be superior to those of competitors such as Advanced Micro Devices or Qualcomm. This allowed Nvidia to amass significant pricing power in its goods and services. As such, Nvidia is not only accelerating revenue growth, but it's expanding margins.
This dynamic impacted Nvidia's bottom line in a material way. Both net income and free cash flow increased by more than sixfold in 2023, helping Nvidia pad its balance sheet with mountains of cash.
As the company sits on $26 billion of cash and equivalents, it achieved an enviable level of financial flexibility. The best part? Management is ratcheting up investments into other high-growth areas centered around AI.
Image source: Getty Images.
A full-spectrum AI solution
Nvidia is primarily a hardware operation at the moment. But throughout 2023, management dropped some breadcrumbs as to how the company is moving beyond semiconductors.
Namely, Nvidia has an enterprise software and services business that has already reached an annual revenue run-rate of $1 billion. Although this is impressive, the business segment is clearly much smaller than Nvidia's core compute networking division.
However, I see many reasons for significant growth in Nvidia's software ambitions. For starters, Nvidia is an investor in big data analytics start-up Databricks. Given the importance of aggregating and synthesizing data at the enterprise level, I'm not surprised to see Nvidia make a move in this space.
Another interesting area that Nvidia is exploring is robotics. In February, the company joined Microsoft and OpenAI in a $675 million funding round for robotics start-up Figure AI. This is a particularly interesting move because robotics represents both a hardware and software opportunity.
Given Nvidia's unique position across both markets, the relationship with Figure AI could represent a high-stakes pursuit to build a full-spectrum AI solution.
Should you invest in Nvidia stock now?
The record performance in 2023, coupled with a robust outlook and myriad opportunities to disrupt different pockets of the AI landscape, has helped fuel Nvidia stock to new highs. While buying into momentum always carries the risk of leaving you as a bag holder, I see things differently with Nvidia.
The company will likely continue to rely heavily on its cash-cow chips business in the near term. But as the competitive landscape intensifies, it's obvious that Nvidia will eventually need new sources of growth.
While it's early days for AI-powered applications in robotics and enterprise software, I am encouraged by Nvidia's long-term prospects. As an investor in the company, I applaud management's ability to identify emerging use cases for AI and swiftly pursue making inroads.
Will Nvidia reach $1,400 per share? Maybe at some point. But the more important theme here is not the specific price Nvidia reaches. It's the narrative surrounding its long-term story.
As use cases in AI continue to evolve, I see Nvidia powering the engine in some fashion for years to come. For this reason, despite such a rapid ascent in the stock, I am bullish that Nvidia's best days are ahead and think now is a terrific opportunity to scoop up some shares.
