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This has been nothing short of a phenomenal year for Nvidia (NVDA). After losing two-thirds of its market cap in 2022, the stock has more than tripled in 2023 - and moreover, Nvidia also joined the exclusive ranks of trillion-dollar companies.
The stock has now closed with gains for 10 straight trading sessions, notching its longest winning streak since 2016. NVDA is currently trading near $500, and is within striking distance of the all-time highs that it hit earlier in the year.
Meanwhile, the semiconductor designer is set to release its fiscal Q3 2024 earnings next Tuesday, Nov. 21, which will likely be the most important market event to watch during the abbreviated holiday week. So, can Nvidia stock continue its upward momentum and eventually reach the psychologically significant level of $1,000? We’ll discuss this in this article.
Nvidia’s Earnings Have Shattered Estimates This Year
So far this fiscal year, Nvidia’s earnings for both the fiscal first and second quarters have shattered analysts’ estimates. In fiscal Q1, Nvidia's revenues of $7.19 billion easily exceeded the $6.52 billion analysts were expecting.
Even more impressive, Nvidia's revenue guidance of $11 billion for the fiscal second quarter was over 50% higher than what analysts were modeling. The Jensen Huang-led company eventually reported revenues of $13.51 billion for the quarter - more than double what it reported in the corresponding quarter last year, and well ahead of its guidance, as well as the $11.22 billion that analysts were expecting.
The fiscal third-quarter revenue outlook was also quite impressive, as Nvidia predicted sales to rise 170% to $16 billion – again, well ahead of the $12.61 billion that analysts were predicting before the report.
NVDA soared after its fiscal Q1 report and soon became a trillion-dollar behemoth - but while the stock quickly set a new high after the fiscal Q2 report, it drifted steadily lower in the days after. The stock had already rallied significantly heading into the release, making it difficult to sustain a post-event rally.
Analysts Expect Nvidia’s Revenues to Rise Sharply
Analysts expect Nvidia’s revenues to rise 170% and 191%, respectively, in the fiscal third and fourth quarters of 2024, and Wall Street is predicting the chipmaker’s revenues to more than double in the fiscal year.
Revenues are projected to rise 47% in the next fiscal year, which - while less than half of the expected growth this year - is still much higher than what any other company of Nvidia’s size is expected to manage.
How Does NVDA’s Valuation Stack Up Against Other Tech Companies?
The average analyst price target on NVDA is $625.53, but some experts have even higher hopes for the stock. In fact, the Street-high target price calls for NVDA to rally above $1,000 per share - more than double its current price.
If Nvidia shares were to rise to $1,000, the company’s market cap would be a mammoth $2.5 trillion – a milestone only Apple (AAPL) and Microsoft (MSFT) have crossed so far.
Nvidia currently trades at a next 12-months (NTM) price-to-earnings multiple of 32.9x, which is in line with Microsoft, but ahead of Apple’s 28.7x. However, while Nvidia has traded at an average multiple of 45x over the last three years, the corresponding figures for Apple and Microsoft are 26.8x and 29.9x, respectively.
NVDA's valuation premium comes from its much faster top-line and bottom-line growth. For instance, Nvidia’s projected fiscal year 2025 (ending Jan. 31, 2025) revenues of $79.6 billion are almost 8x what it reported in fiscal year 2021. In contrast, analysts are projecting Apple’s revenues to hit nearly $420 billion in fiscal year 2025 (ending Sep. 30, 2025) which is around 53% higher than what it posted in the fiscal year 2020. Similarly, Microsoft’s projected revenues for fiscal year 2025 (ending June 30, 2025) are $276 billion – almost 94% higher than what it posted in the fiscal year 2020.
Based solely on the valuation multiples and the expected growth over the next fiscal year, Nvidia might look quite undervalued as compared to Microsoft and Apple. However, to put things in further perspective, both Apple and Microsoft are expected to report steady growth in the next several years - while in Nvidia’s case, a lot of that projected growth depends on how the artificial intelligence (AI) theme plays out, as the revenue and profit growth that it is currently experiencing may or may not last beyond the next fiscal year.
Can Nvidia Sustain Its Current Growth Rates?
Whether Nvidia stock rises to $1,000 over the next couple of years will most likely depend on the sustainability of its revenues from selling AI chips. Currently, demand is through the roof - and despite the ban on exports of high-end AI chips to China, Nvidia does not expect sales to slow down, at least for now. The pricing for its AI chips is also robust, which is helping the company to post record profits.
However, there's one segment of the market that seems doubtful Nvidia can maintain its current growth rates and keep rallying on the charts. The latest 13F filings for Q3 showed that George Soros trimmed his stake in Nvidia during the quarter, while Michael Burry of “Big Short” fame opened a new short position in the iShares Semiconductor ETF (SOXX), whose third-largest holding is Nvidia, with a notional value of $47.4 million (even as he closed his short bets on the broader market benchmarks).
Over the long term, Nvidia has been a multi-bagger stock, and has risen almost 28,000% over the last 20 years.
The company has a presence in multiple emerging and secular growth industries, and apart from generative AI, it is also a play on gaming and autonomous driving. While Nvidia’s Automotive business is pacing at an annual revenue run rate of just above $1 billion, the company believes that it could be a $300 billion market opportunity as autonomous driving gains traction.
Can Nvidia Shares Rise to $1,000?
Rosenblatt expects Nvidia’s stock price to rise above $1,000 over the next 12 months, and has a Street-high target price of $1,100 on the stock. Given Nvidia’s track record in innovation and its chips being central to most high-end technologies, I believe the stock reaching $1,000 seems like a question of “when” and not “if.”
On the date of publication, Mohit Oberoi had a position in: NVDA , AAPL , MSFT . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
