The market remains divided on this high-growth AI play right now
- Nvidia (NVDA) became the first chipmaker to hit a $1 trillion market cap, marking substantial growth from 2013 to 2023.
- Should Nvidia’s valuations remain stable and it achieves another doubling of revenue and profits, it could potentially reach a $2 trillion market cap by year-end.
- The demand for Nvidia’s new H100 GPU, designed for AI applications, has been exceptionally strong since its launch.
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In May, Nvidia (NASDAQ:NVDA) briefly reached a $1 trillion market value, propelled by its success in the AI sector, with its stock tripling in less than eight months thanks to the growing interest in generative AI.
Given the stock’s impressive momentum, many are now considering the potential from here. If a stock like Nvidia can triple in such short order, why can’t it double again from here?
That’s a fair questions. Indeed, Nvidia achieved impressive revenue growth over the last decade, with a 20% CAGR from fiscal 2013 to 2023. PC gaming, professional visualization, and a powerful presence in the data center sector fueled this growth.
Those sectors made up 56% of its total revenue in fiscal 2023. In comparison, gaming’s contribution decreased from 44% to 34% during the same period.
Let’s dive into whether another doubling of NVDA stock is even possible from here, given the company’s incredibly rich valuation.
Nvidia Hits Record High
Nvidia’s record high of more than $500 per share seen in late-August implied a valuation of roughly $1.25 trillion.
Indeed, that’s an incredible rally from where the stock began 2023 (around $143 per share), and suggests that momentum is certainly on the side of this fast-growing semiconductor maker.
Much of this increase has to do with Nvidia’s recent blowout quarter. Nvidia’s Q4 earnings forecast of $16 billion far exceeds the $12.61 billion analyst consensus, indicating 170% year-over-year sales growth.
Net income rose sharply to $6.19 billion ($2.48 per share) from $656 million (26 cents per share) year-over-year. Nvidia’s GPUs, such as A100 and H100 AI chips, are vital in generative AI, including ChatGPT.
The company’s revenue doubled to $6.7 billion, driven by data centers embracing accelerated computing and generative AI.
Nvidia’s CFO, Colette Kress, reassured that potential chip export restrictions by the Biden administration wouldn’t have an immediate significant impact due to strong global demand for their products.
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Nvidia Is Always In Demand
Four major Chinese tech firms – Baidu, ByteDance, Tencent, and Alibaba – ordered $1 billion worth of Nvidia A800 chips for 2023 delivery.
Another $4 billion order is scheduled for 2024. This showcases their demand for high-performance chips and commitment to tech advancements.
Nvidia’s optimistic outlook and soaring market cap signify the AI excitement reshaping computing. Major players are investing in Nvidia’s AI technology.
Initially gaming-focused, Nvidia’s GPUs found new life in AI research, becoming integral in various industries.
Nvidia’s data center chip sales, vital for AI training, now dominate, surging to $10.3 billion, in stark contrast to peers like Intel and AMD, facing revenue declines.
Major tech firms pivot towards AI, particularly generative AI, with Nvidia’s GPUs playing a dominant role in powering these systems.
What Now
As Nvidia is currently the leader in AI hardware, it is conceivable that it could reach a $2 trillion market cap if its revenues and profits double this year.
However, with other competitors such as Intel and AMD increasing their presence in the data center sector, Nvidia’s lead may be short-lived.
The current success of Nvidia’s products demonstrate its strong customer base and potential to double its market value this year.
That said, Nvidia’s valuation is what I’d say is in the nosebleed section of companies with valuations in the nosebleed section. It would take some extraordinary revenue and earnings beat next quarter to generate such a move toward a $2 trillion valuation.
Anything is possible, as we’ve seen with Nvidia of late, and I’m not going to rule it out. I just wouldn’t bet the farm on such a move.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
