Some of the market's best performers last year had one thing in common. They were already well acquainted with the vast potential of artificial intelligence (AI) and have since become known jointly as the "Magnificent Seven." The group has continued its market-beating ways in 2024, rising 88%, on average, so far this year (as of Monday afternoon).
One Wall Street analyst believes the best-performing member of this group still has upside ahead.
Trillions of dollars in spending are on the horizon
Nvidia (NVDA 6.18%) has been a clear winner in the AI revolution. The stock is up 257% over the past year, leaving investors to wonder when it will run out of steam. TD Cowen analyst Matthew Ramsay believes there's more to come, raising Nvidia's price target to $1,100 while maintaining an outperform (buy) rating on the shares. That represents a potential upside for investors of 15% compared to the stock's price Monday afternoon.
After attending the company's GPU Technology Conference (GTC) last week, the analyst was bullish on Nvidia's "leadership position in all forms of accelerated computing, especially AI, across compute, networking, and software."
I believe the analyst is definitely on the right track. The biggest upside potential could come from data centers, where much of the accelerated computing and AI processing occurs. Existing data centers must be upgraded to handle the rigors of AI processing, which requires much more computational horsepower than before.
Estimates suggest $1 trillion will be spent upgrading data centers over the coming four years. Furthermore, the rapid adoption of AI will require new data centers to be built. Nvidia CEO Jensen Huang suggests that over the coming four to five years, the installed base of data centers will double to more than $2 trillion.
Nvidia stock currently sells for 38 times forward earnings. While that's a premium compared to the price-to-earnings ratio of 28 for the S&P 500, Nvidia's track record of growth and the significant opportunity ahead make it worth every cent.
