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Santa Clara-based Nvidia Corporation (NVDA) has become the crown jewel of the chip industry, surfing the surging wave of the artificial intelligence (AI) revolution. With major tech giants relying on the company’s specialized chips to train their generative AI models, Nvidia has solidified its industry dominance.
The chip maker’s meteoric rise over the past year, driven by an insatiable demand for its AI-essential chips, has captivated the entire market. This rapid ascent has catapulted it to the prestigious position of the world's third most valuable company, trailing just behind tech giants Apple (AAPL) and Microsoft (MSFT).
As retail investors flocked to catch a piece of Nvidia's dramatic ascent, Goldman Sachs (GS) strategist Scott Rubner boldly dubbed NVDA the "most important stock” of the year earlier this month.
Moreover, Philippe Laffont’s Coatue Management recently disclosed a dramatic increase in its Nvidia investment, signaling a strong vote of confidence in the chip giant’s future. But as the AI darling grapples with volatility and skepticism after its latest earnings release, is it wise to follow this billionaire's bold lead now? Let’s take a closer look to find out.
About Nvidia Stock
Valued at a staggering market cap of around $2.89 trillion, Nvidia Corporation (NVDA), the global pioneer of the GPU, has evolved from a PC graphics specialist to a leader in AI-driven solutions. Its GPUs, with their parallel processing and thousands of cores, are essential for HPC, gaming, and VR. The company is a key player in emerging markets like robotics and self-driving cars, outshining competitors such as Intel (INTC) and Advanced Micro Devices (AMD) in the data center, professional visualization, and gaming segments.
Nvidia investors have enjoyed a wild two-year ride, with the AI boom sending the stock soaring to gains of more than 1,000% from its October 2002 lows. In June, Nvidia briefly claimed the title of the world’s most valuable public company, but after reaching that peak, the ride has been a sideways chop.
Even after a pullback of nearly 15.7% from its June highs, the chip giant is still boasting stellar gains of 144.6% over the past year and 141% on a YTD basis, crushing the broader S&P 500 Index’s ($SPX) double-digit returns during both time frames.
Even though NVDA stock trades at a lofty 50.10 times forward earnings, reflecting a fairly steep valuation, its price/earnings to growth (PEG) ratio tells a different story. At 1.33x, NVDA’s PEG is below the sector median of 1.89x and its own historical average of 2.09x, suggesting that the stock remains reasonably priced compared to its strong growth prospects.
Apart from the stellar stock performance, Nvidia has also been rewarding its shareholders through dividends, and more substantially, through share repurchases. The company announced a quarterly dividend of $0.01 per share in its latest earnings release, set to be distributed to its shareholders on Oct. 3. Its forward annualized dividend of $0.04 per share offers a yield of 0.03%.
In the first half of fiscal 2025 alone, Nvidia has returned an impressive $15.4 billion to shareholders through buybacks and dividends. With $7.5 billion still available for repurchases, and a staggering $50 billion newly approved, the company’s commitment to rewarding investors remains strong.
Nvidia Slides After Strong Q2 Earnings
After dazzling investors with its Q1 earnings report, which stuck to the company’s trend of shattering expectations, Nvidia’s much-anticipated fiscal Q2 earnings results once again soared beyond Wall Street’s projections on both the top and bottom lines. During the quarter, Nvidia’s total revenue of $30 billion topped Wall Street’s forecasts of $28.8 billion, and marked a whopping 122% jump from the year-ago quarter.
Nvidia’s data center revenue, which includes its AI processors, skyrocketed 154% year-over-year to $26.3 billion, making up a hefty 88% of total sales. On an adjusted basis, the company’s earnings of $0.68 per share soared a notable 151.9% annually and blew past expectations by a 5.7% margin.
Despite reporting such excellent figures in Q2, the stock took a 6.4% hit post-earnings, as it seems a fairly substantial beat was already priced in. And for a company that’s been on a remarkable growth trajectory, Nvidia’s forecast for 80% revenue growth in Q3 came as a relative disappointment. Concerns over potential delays in the next-gen Blackwell processors also reined in investors' enthusiasm toward NVDA stock.
During the Q2 earnings call, management indicated that production of its next-gen Blackwell chip platform may not ramp up until Q4 of this year, pushing the anticipated 2024 release into 2025. While rumors of a delay due to design issues had circulated before the Q2 earnings report, the high expectations led investors to fixate on this shortfall rather than the company’s otherwise robust performance.
Looking forward to fiscal 2025 Q3, management projects total revenue of $32.5 billion, plus or minus 2%. The company anticipates gross margins of 74.4% on a GAAP basis and 75% on a non-GAAP basis, holding steady in the mid-70% range for the entire year. Additionally, Hopper shipments are anticipated to rise in the latter half of fiscal 2025.
Over the longer term, analysts tracking Nvidia project the company’s profit to reach $2.56 per share in fiscal 2025, representing a 117% jump from the previous year. This growth pace is expected to slow in fiscal 2026, with earnings anticipated to rise 27% to $3.25 per share.
Coatue Management Makes a Bold Bet on Nvidia
In a bold display of confidence, Philippe Laffont’s legendary hedge fund Coatue Management dramatically ramped up its stake in Nvidia during the second quarter, even as many other hedge funds pared their holdings in the AI chip leader. According to the hedge fund’s latest 13F filings, Coatue increased its holdings by a staggering 893% in Q2 of fiscal 2024, soaring from 1.39 million shares to a jaw-dropping 13.75 million.
This massively increased stake, now valued at about $1.7 billion, underscores the hedge fund’s strong belief in Nvidia’s continued dominance in AI and high-performance computing. This strategic pivot is particularly striking given Coatue's previous reductions in Nvidia holdings.
The nearly tenfold increase in Q2 not only reflects Coatue’s aggressive stance but also positions Nvidia as a major holding in the fund’s portfolio, now comprising roughly 6.6% of its total holdings, up from 4.9% in the prior quarter. As Nvidia continues to deliver outsized growth on robust AI demand, Coatue’s substantial bet suggests that the firm anticipates sustained upside for the shares in the future.
What Do Analysts Expect for Nvidia Stock?
Despite investors’ concerns post Q2-announcement, Wall Street analysts remain confident about NVDA’s prospects. For instance, Goldman Sachs analyst Toshiya Hari kept a “Conviction Buy” rating and $135 price target for Nvidia stock, despite a lower-than-expected gross margin forecast. His confidence is buoyed by the chip giant’s strong data center revenue potential, management's optimistic outlook on rising Hopper sales, and the expectation that the redesigned Blackwell GPU could drive billions in revenue in Q4.
JP Morgan (JPM) analyst Harlan Sur shared a similar outlook, downplaying the impact of a two-month delay in Blackwell GPU shipments, which he believes will be offset by Hopper’s strong performance. Sur expects Nvidia’s gross margins to improve over the next year, and praised the company’s “aggressive product launch cadence” for maintaining its edge over competitors. As a result, he bumped his price target for NVDA stock to $155 per share.
Meanwhile, Cantor Fitzgerald analyst C.J. Muse stood by a $175 price target and “Overweight” rating for NVDA, dismissing concerns about the Blackwell delay as a "nothing burger" ahead of what promises to be one of the company’s most significant product cycles ever. The analyst remains confident in the company’s AI-driven growth story and views the current pullback as a prime buying opportunity.
Overall, Wall Street is highly bullish about NVDA stock and holds a consensus “Strong Buy” rating. Of the 39 analysts covering the stock, 34 advise a “Strong Buy,” two suggest a “Moderate Buy,” and the remaining three analysts advocate a “Hold.”
The mean price target for NVDA is $142.60, indicating expected upside potential of 19.5% from current levels. The Street-high target price of $200 implies that the stock could rally as much as 67.5% from here.
On the date of publication, Anushka Mukherji did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
