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Nvidia (NVDA) is the leading high-performance computing semiconductor stock in the market, and that's well-known. Also the most valuable company in the world, Nvidia has become integral to the U.S.-led AI growth story and is a stock that's poised to continue providing outsized returns for investors over the long haul.
That's been the view of most analysts for quite some time, and we'll get to those price targets in a bit. But this week, all eyes have been on the GTC (which stands for GPU Technology Conference) Nvidia hosts each year. At this event, the company unveiled what it's calling DLSS 5, ushering in what Nvidia is calling the “most significant breakthrough in computer graphics since the debut of real-time ray tracing in 2018.”
Let's dive into what this announcement means and what Nvidia investors should make of this key news.
What's the Big Deal?
Nvidia's launch of its DLSS 5 platform is set to be the biggest upgrade to its real-time ray tracing technology since it was launched in 2018. As such, investors bullish on the future of AI-driven video game publishing will certainly link this launch to an even more robust backlog of chips.
The real question will be how this launch will impact Nvidia's margins and bottom line moving forward. Indeed, I think this key improvement will likely provide some incremental upside for investors, though I'm unclear on the ultimate impact (as many in the market are). That's simply because many of Nvidia's other business segments produce far more revenue and earnings growth over time. But all things considered, for those thinking that gaming will continue to explode in popularity and wallet share among consumers, this is a high-growth business worth reinvesting in.
Looking at Nvidia's margins above, it's hard to disagree with the historical track record here. And even if Nvidia gets a very marginal bump from this DLSS 5 launch, small margin improvements (even an improvement to 56% or 57%) could be enough for analysts and market participants to re-rate this stock higher.
That's why I'm on the side of Wall Street analysts when it comes to Nvidia right now.
So, What Do the Experts Think?
Currently, the consensus price target on NVDA stock sits at a little more than $265 per share. At current prices, that means that the average analyst covering the world's largest company believes there's around 45% upside over the next year or so in this name.
This price target may seem aggressive. However, given the performance we've seen out of Nvidia in recent years, such a price target may ultimately turn out to be light. That is, if Nvidia can continue smashing earnings expectations in the coming quarters and see solid traction from its release of DLSS 5 and other key tools used within the developer community.
The bottom line is that there continue to be a plethora of growth drivers underpinning Nvidia's success right now. This recent launch is just one example of all the incredible things the Nvidia team is working on. So, for those looking to own a slice of history, buying NVDA stock on a significant dip has proven to be a great strategy. I don't see why that thesis would break down anytime soon, at least for this blue-chip AI name.
