Santa Clara-based Nvidia Corporation (NVDA) has emerged as a shining star in the chip industry, riding the wave of the artificial intelligence (AI) revolution. Major tech giants depend on Nvidia’s specialized chips for their cutting-edge generative AI models, solidifying the company’s dominance.
The meteoric ascent of this chip maker over the past year, fueled by the insatiable demand for AI-centric chips, has captured the market’s attention. This rapid rise has propelled Nvidia to claim the title of the world’s third most valuable company, trailing only tech titans Apple (AAPL) and Microsoft (MSFT).
Amid the frenzy of retail investors eager to partake in Nvidia’s ascent, Goldman Sachs strategist Scott Rubner boldly declared NVDA as the “most important stock of the year” recently. Furthermore, Philippe Laffont’s Coatue Management significantly upped its Nvidia investment, indicating a strong vote of confidence in the chip giant’s future. Yet, with Nvidia facing volatility post-earnings, should investors follow this billionaire’s lead now? Let’s delve deeper to unearth the truth.
The Reign of Nvidia Stock
Valued at a staggering market cap of around $2.89 trillion, Nvidia Corporation (NVDA) has evolved from a PC graphics specialist to an AI solutions front-runner. Its GPUs, with parallel processing capabilities and thousands of cores, are imperative for High-Performance Computing (HPC), gaming, and Virtual Reality (VR). Nvidia outshines competitors like Intel (INTC) and Advanced Micro Devices (AMD) in areas such as data centers, professional visualization, and gaming.
Nvidia investors have witnessed a rollercoaster ride, with the AI boom propelling the stock to over 1,000% gains from its October 2002 lows. In June, Nvidia briefly held the title of the world’s most valuable public company. However, following this peak, the stock has been meandering sideways.
Despite a recent pullback of nearly 15.7% from its June highs, Nvidia still boasts remarkable gains of 144.6% over the past year and 141% year-to-date, outperforming the broader S&P 500 Index’s returns for both periods.
Although NVDA’s stock trades at a lofty 50.10 times forward earnings, signaling a steep valuation, its price/earnings to growth (PEG) ratio paints a different picture. With a PEG of 1.33x, below the sector median of 1.89x and its historical average of 2.09x, Nvidia’s stock appears reasonably priced given its robust growth prospects.
Alongside its stellar stock performance, Nvidia has been rewarding shareholders through dividends and substantial share repurchases. The company announced a quarterly dividend of $0.01 per share in its latest earnings release, scheduled to be paid to shareholders on Oct. 3. With a forward annualized dividend of $0.04 per share offering a yield of 0.03%, Nvidia returned a notable $15.4 billion to shareholders in the first half of fiscal 2025 through buybacks and dividends. With $7.5 billion still available for repurchases and a newly approved $50 billion repurchase plan, Nvidia remains dedicated to rewarding investors.
Nvidia Stumbles Post Strong Q2 Earnings
Following an impressive Q1 earnings report that surpassed expectations, Nvidia once again exceeded Wall Street’s projections for its fiscal Q2 earnings across both revenue and earnings. Q2 saw Nvidia’s total revenue of $30 billion, beating Wall Street’s estimates of $28.8 billion, marking a substantial 122% increase from the previous year.
Nvidia’s data center revenue, inclusive of its AI processors, surged 154% year-over-year to $26.3 billion, constituting a significant 88% of total sales. On an adjusted basis, the company’s earnings of $0.68 per share jumped 151.9% annually, surpassing expectations by 5.7%.
Despite the outstanding Q2 results, Nvidia’s stock faced a 6.4% decline post-earnings, suggesting a considerable beat was already priced into the stock. Nvidia’s forecast of 80% revenue growth for Q3 disappointed investors given the company’s remarkable growth trajectory. Concerns over potential delays in the next-gen Blackwell processors tempered enthusiasm towards NVDA stock.
During the Q2 earnings call, management hinted that production of the next-gen Blackwell chip platform might not ramp up until Q4 of this year, pushing the anticipated 2024 release into 2025. Rumors of a delay due to design issues had circulated pre-Q2 earnings report, with high expectations causing investors to focus on this setback rather than the company’s otherwise robust performance.
Looking ahead to fiscal 2025 Q3, management…
The Dynamics Driving Nvidia’s Growth and Investment Confidence
Coatue Management’s Strategic Investment
Emboldened by the roaring currents in the chip industry, Philippe Laffont’s Coatue Management took the plunge and bolstered its position in Nvidia during a recent quarter, defying the naysayers who sailed in different directions. In a stunning move captured in the hedge fund’s latest filings, Coatue upped the ante by a staggering 893%, propelling its Nvidia holdings from 1.39 million shares to a jaw-dropping 13.75 million. This maneuver, now valued at $1.7 billion, shines a light on Coatue’s unwavering faith in Nvidia’s supremacy in AI and high-performance computing. The fund’s strong show of enthusiasm also positions Nvidia in a prime spot within its portfolio, weighing in at approximately 6.6% of total holdings. As Nvidia’s growth trajectory marches on the back of robust AI demand, Coatue’s substantial bet signals a belief in prolonged upside potential for the shares.
Analysts’ Projections for Nvidia
Following the ripples caused by the latest quarter’s announcements, Wall Street analysts remain in Nvidia’s corner, undeterred by temporary fluctuations. Goldman Sachs’ Toshiya Hari maintained a “Conviction Buy” rating and a $135 price target for Nvidia stock, standing firm even in the face of a slightly dimmed gross margin outlook. The analyst finds solace in the chip giant’s promising data center revenue streams, sanguine management projections for escalating Hopper sales, and the foreseen revenue bonanza stemming from the revamped Blackwell GPU in the fourth quarter.
JP Morgan’s Harlan Sur echoes similar sentiments, shrugging off concerns about the Blackwell GPU shipment delay. Sur is optimistic that Hopper’s stellar performance will overshadow any setbacks from the delay, foreseeing a brighter margin forecast ahead. He commends Nvidia’s bold product launches for keeping it ahead of the curve amid fierce competition. As a testament to this confidence, he raised his price target for NVDA stock to $155 per share.
On the same wavelength, Cantor Fitzgerald’s C.J. Muse reaffirmed a $175 price target and an “Overweight” rating for NVDA, dismissing the Blackwell delay fuss as mere noise. He sees the current pullback as an opportune moment to dive in, riding the wave of what could be Nvidia’s most transformative product cycles yet. With a deep-seated belief in the company’s growth narrative powered by AI, Muse views the trend as a call to action for savvy investors.
Broader Market Outlook
The consensus on Wall Street stands tall in favor of NVDA stock, adorned with a resounding “Strong Buy” rating. Out of the 39 analysts scrutinizing the stock, 34 advocate for a “Strong Buy,” two lean towards a “Moderate Buy,” while the remaining trio suggests holding the line with a “Hold” rating.
The average price target for NVDA sits at $142.60, hinting at an upside of 19.5% from current levels. Meanwhile, the loftiest target price of $200 paints a vivid picture of a potential 67.5% surge from the present stance of the stock.
