Nvidia (NASDAQ:NVDA), the leading chipmaker and AI innovator, has experienced an impressive upward trajectory, with its stock value more than tripling in 2023 and showing a year-to-date increase of about 78%. The company’s recent Q4 earnings beat was extraordinary, driving NVDA to reach all-time highs. As the pioneer in the AI revolution, my bullish stance on NVDA remains unchanged, as I see tremendous long-term growth potential driven by the booming artificial intelligence industry and the company’s favorable valuation. It is my recommendation to buy NVDA stocks at their current levels.
Q4 Earnings Surpass Expectations Once Again
Nvidia, now the third largest company globally, reported yet another exceptional Q4 result on February 21. The outstanding performance was mainly attributed to accelerated computing and the strong momentum of generative AI. The company’s adjusted earnings per share of $5.16 exceeded analysts’ estimates of $4.59 per share. Moreover, this figure represented a significant increase of 486% compared to the previous fiscal Q4 period.
Impressively, Q4 revenue soared by 265% year-over-year, reaching $22.1 billion, surpassing the consensus estimate of $20.5 billion. Alongside this revenue growth, NVDA’s adjusted gross margin expanded by 10.6 percentage points, reaching an impressive 76.7%, up from 66.1% in the previous year.
NVDA’s Data Center segment, considered the crown jewel of the company, saw a remarkable year-over-year revenue growth of 409% in Q4, reaching $18.4 billion. This substantial increase further solidifies Nvidia’s leadership in the AI arena.
Despite the expected decline in revenues from China due to export control restrictions, the management stated that China accounted for only a mid-single-digit percentage of Data Center revenue in Q4, compared to an average of 20-25% in previous quarters.
Looking ahead, the company’s Q1 guidance is promising, with revenues expected to hover around $24 billion and adjusted gross margins forecasted to be around 77%. Nvidia’s CEO, Jensen Huang, expressed great optimism for the future during the earnings call, stating that the company is at the beginning of two industry-wide transitions: the transition from general to accelerated computing and the emergence of generative AI.
NVDA’s Impressive Long-Term Trajectory
Nvidia has become Wall Street’s favorite for a reason. Over the past six years, the company’s revenues have skyrocketed by nearly 9 times, from $6.91 billion in FY2017 to an impressive $60.9 billion in FY2024. In the same period, its earnings have grown by 18 times, reaching $29.8 billion, thanks to rising profit margins. These remarkable statistics instill a strong sense of confidence in the company’s solid business fundamentals and its projected growth trajectory, driven by AI.
According to estimates from Wall Street analysts, Nvidia is expected to achieve a net profit of $64.3 billion in Fiscal 2025, doubling the $32.3 billion reported in Fiscal 2024. Additionally, revenue expectations surpass the monumental $100 billion milestone. These growth projections provide compelling reasons to continue investing in this AI giant, especially as the disruptive potential of generative AI is just beginning to unfold.
Potential for Stock Split
As Nvidia approaches the $1,000 milestone mark, many analysts believe that a stock split may be on the horizon within the next year. In May 2021, the company underwent a 4:1 stock split when it was priced at around $600. This decision aimed to make it easier for smaller retail investors to access the stock. While a stock split doesn’t inherently affect a company’s valuation or fundamentals, it does expand its investor base by attracting smaller investors. Other prominent companies that have pursued stock splits include Tesla, Apple, Amazon, and Alphabet. Considering this, it is likely that Nvidia may consider another stock split in the near future.
Attractive Valuation and Analyst Ratings
Despite concerns about overvaluation, particularly after surpassing Amazon’s market capitalization and nearing Apple’s, Nvidia’s stock remains attractively priced. Currently, it trades at a compelling forward P/E ratio of 36.9x, based on FY2025 earnings expectations. This valuation is relatively cheaper compared to its peers. For example, Advanced Micro Devices (NASDAQ:AMD), a U.S.-based semiconductor company, trades at a forward P/E of 53.4x. Moreover, Nvidia’s current valuation reflects a discount compared to its five-year average of 46x. All these factors point to a great buying opportunity, considering its significant growth potential in the AI market.
According to analysts, NVDA is a strong buy, with 39 buy ratings and only two hold ratings in the past three months. The average target price for Nvidia’s stock has continuously increased, currently standing at $909.49, suggesting a projected 3.4% return over the next year.
Conclusion: Invest in NVDA for its AI Potential
With its undeniable momentum and dominant position in the AI industry, Nvidia is well-positioned for further growth. The company’s approximately 80% market share in AI chips provides a solid moat against competitors and ensures its continued success in the flourishing AI landscape. As the demand for AI technology continues to outpace supply, accelerated computing and generative AI adoption offer significant revenue and earnings growth opportunities for Nvidia in the coming years.
With the highly anticipated live GTC conference scheduled for March 18-21, my bullish outlook on Nvidia remains unwavering. Consequently, I highly recommend purchasing NVDA shares at their current levels to capitalize on its long-term potential in the AI market.
FAQ
Q: Why is Nvidia considered a leader in the AI industry?
A: Nvidia has established itself as a dominant force in AI technology by capturing approximately 80% of the market share in AI chips, solidifying its position and creating a robust moat against competitors.
Q: Does Nvidia’s impressive growth justify its valuation?
A: Yes, despite its remarkable rally, Nvidia’s stock is still attractively priced, with a forward P/E ratio below its historical average and lower than its peers in the semiconductor industry.
Q: Will Nvidia consider another stock split in the future?
A: Given its history of stock splits and the potential benefits of attracting smaller investors, it is likely that Nvidia may consider another stock split in the near future.
Q: What is the consensus rating for Nvidia’s stock?
A: Analysts widely perceive Nvidia as a strong buy, with a consensus rating of 39 buy ratings and only 2 hold ratings in the past three months.
Q: What are the growth expectations for Nvidia in the coming years?
A: Wall Street estimates project impressive growth for Nvidia, with a projected net profit of $64.3 billion in Fiscal 2025, more than double its reported profit in Fiscal 2024, and revenues expected to exceed $100 billion.
FAQ
Q: Why is Nvidia considered a leader in the AI industry?
A: Nvidia has established itself as a dominant force in AI technology by capturing approximately 80% of the market share in AI chips, solidifying its position and creating a robust moat against competitors.
Q: Does Nvidia’s impressive growth justify its valuation?
A: Yes, despite its remarkable rally, Nvidia’s stock is still attractively priced, with a forward P/E ratio below its historical average and lower than its peers in the semiconductor industry.
Q: Will Nvidia consider another stock split in the future?
A: Given its history of stock splits and the potential benefits of attracting smaller investors, it is likely that Nvidia may consider another stock split in the near future.
Q: What is the consensus rating for Nvidia’s stock?
A: Analysts widely perceive Nvidia as a strong buy, with a consensus rating of 39 buy ratings and only 2 hold ratings in the past three months.
Q: What are the growth expectations for Nvidia in the coming years?
A: Wall Street estimates project impressive growth for Nvidia, with a projected net profit of $64.3 billion in Fiscal 2025, more than double its reported profit in Fiscal 2024, and revenues expected to exceed $100 billion.
Definitions:
– AI: Artificial Intelligence, the simulation of human intelligence in machines that are programmed to think and learn like humans.
– Q4: The fourth quarter of a company’s fiscal year.
– Earnings: The financial results of a company’s operations, usually referred to as profits or net income.
– Revenue: The total income generated by a company from its operations.
– Gross Margin: The percentage of revenue that a company retains as profit after accounting for the cost of goods sold.
– Data Center: A facility used to house computer systems and associated components, such as telecommunications and storage systems.
– Stock Split: A corporate action in which a company divides its existing shares into multiple shares to increase the number of shares available.
– Valuation: The process of determining the economic value of a company or asset.
– P/E Ratio: Price-to-earnings ratio, a valuation ratio that compares a company’s stock price to its earnings per share.
– Analyst Ratings: Ratings given by financial analysts to evaluate the potential performance of a company’s stock.
– Forward P/E: The price-to-earnings ratio based on estimated future earnings.
Suggested related links:
– Nvidia Official Website
– Nvidia Stock on NASDAQ
The source of the article is from the blog cheap-sound.com