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In the semiconductor industry, few names resonate as profoundly as the tech behemoth Nvidia (NVDA). The chip giant has been building its legacy for the past two decades, and over the last 20 years, its stock has returned an eye-catching 25,514%.
Last year was a game-changer for Nvidia. Shares of the chip designer surged 238%, easily outperforming the tech-heavy NASDAQ Composite’s ($NASX) gain of 43%. While the artificial intelligence (AI) rush boosted the performance of many tech stocks, Nvidia’s gain can specifically be credited to its better-than-expected quarterly results in fiscal 2024.
Though U.S.-China trade concerns still loom, Nvidia has figured out ways to mitigate these issues. Wall Street, therefore, anticipates that the company will continue to grow in the upcoming quarters - which might push its stock even higher, and possibly even to the Street-high target price of $1,100. Let’s dig in deeper.
2023: A Standout Year for Nvidia
Before we dive into what to expect from the industry titan in 2024, here's a quick recap of how Nvidia performed in 2023.
Nvidia is popular for its innovative graphics processing units (GPUs) that power everything from gaming, automotive, and healthcare to AI. These high-performing chips have driven Nvidia’s performance in fiscal 2024.
In the third quarter ended Oct. 29, 2023, revenue jumped an incredible 206% from the year-ago quarter and 34% sequentially to $18.1 billion. Additionally, adjusted earnings per share (EPS) shot up more than six-fold from the prior-year quarter and 49% sequentially to $4.02.
Staggering growth of 279% year-over-year in the Data Center segment and 81% growth in the Gaming segment contributed to the third-quarter revenue increase. For the nine months ended Oct. 29, Nvidia reported a gigantic free cash flow balance of $15.7 billion, which should allow it to fund future AI collaborations, clear off debts, and pay dividends.
Will 2024 Be As Rewarding As Last Year?
While last year was rewarding, ongoing U.S.-China trade concerns raise the question as to whether Nvidia can uphold its status as a semiconductor juggernaut. In October 2023, the U.S. Commerce Department announced limitations on the export of advanced computer chips to China.
Notably, 20%–25% of Data Center revenue comes from China and other nations impacted by the new export restrictions. As a result, Nvidia anticipates a minor decline in revenue for the fourth quarter, somewhat offset by growth in other areas.
Factoring in these headwinds, revenue is estimated to be around $20 billion (plus or minus 2%) for Q4, in line with analysts’ prediction of $20.03 billion. Additionally, management projects an adjusted gross margin of roughly 75.5% for the quarter.
Looking ahead, analysts predict revenue growth of 118% to $58.7 billion, with EPS growth of 268.3% to $12.30, for the full fiscal year 2024.
Separately, Reuters reported that Nvidia expects to release the GeForce RTX 4090 D, a modified gaming chip, in January. This chip is specifically made to abide by the new U.S. export regulations for China.
The Next Big Growth Driver for NVDA
Nvidia CEO Jensen Huang believes the “second wave of AI has begun,” as AI becomes more ingrained in practically every industry. Increased AI offerings and growth in all of Nvidia's segments could help the business prosper in the upcoming years.
Additionally, Nvidia may see an increase in revenue as a result of its partnerships with top businesses around the globe. Its Automotive segment, which grew by just 4% year over year in Q3, also offers a lot of potential. In the upcoming years, the company's partnership with Foxconn to produce next-generation electric vehicles (EVs) may serve as yet another growth driver.
Moreover, a rebound in the personal computer (PC) market may contribute to Nvidia's growth this year. According to market research firm Canalys, the global PC market could show a recovery of 8% in 2024.
Nvidia's expansion beyond GPUs into data center solutions, autonomous vehicles, and AI requires a delicate balance. Adapting swiftly to market shifts and diversifying product offerings while maintaining core strengths is essential for sustained growth.
Interestingly, while Nvidia is experiencing tremendous growth, its shares still aren’t that expensive. Trading at 24 times forward estimated fiscal 2025 earnings, Nvidia’s shares are reasonable compared to its five-year historical average price-to-earnings ratio of 65. Analysts predict Nvidia’s revenue and earnings to increase by 54% and 62% year-over-year in fiscal 2025.
What Do Analysts Say About Nvidia?
Turning to Wall Street, Nvidia has a “strong buy” rating in the analyst community. Out of the 35 analysts that cover the stock, 30 have a “strong buy” recommendation, with three “moderate buy” ratings and two “hold” ratings. The average target price for NVDA is $653, which implies a potential upside of 35% over the next 12 months.
The Bottom Line on Nvidia
Nvidia's legacy as a semiconductor giant is built not merely on its past achievements, but on its agility and foresight in navigating the intricacies of a constantly changing industry. With a solid foundation in GPU technology, a commitment to innovation, and strategic diversification, Nvidia appears poised to not only sustain but potentially elevate its position in the semiconductor space.
Rivals in the industry, including AMD (AMD) and Intel (INTC), continue to innovate and compete fiercely. That said, Nvidia holds a commendable 80% market share in chips, according to Reuters, which I believe is quite unshakeable.
As the AI niche continues to evolve, the journey ahead is marked by challenges and opportunities. However, I believe in Nvidia's ability to navigate through this space and emerge even stronger in the next few years.
Given the anticipated growth, now might be a good time for investors to raise their stakes in Nvidia. Additionally, for investors who believe they missed out on the Nvidia rally, it might not be too late to buy and hold this outstanding growth stock.
On the date of publication, Sushree Mohanty 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.
