Nvidia (NASDAQ: NVDA) stock has been on an extraordinary trajectory, showcasing a remarkable rise of nearly 240% in 2023 and another impressive surge of around 108% in 2024 so far. The allure of Nvidia’s performance over the last two years has left investors wondering – could the stock double yet again within the next year?
The Impact of AI on Nvidia’s Growth
Nvidia’s meteoric ascent is intricately linked to the proliferation of artificial intelligence (AI) computing. The company’s graphics processing units (GPUs) play a pivotal role in AI model training, excelling at processing a multitude of calculations in parallel. Nvidia’s dominance in this field has cemented its status as the go-to choice for entities aiming to bolster their AI computing infrastructure. These companies are not just purchasing a couple of GPUs; they are connecting thousands of these devices, constructing a powerhouse capable of swiftly processing vast amounts of data.
The surge in demand for Nvidia’s products has triggered exponential growth in its sales.
In the second quarter of fiscal year 2025, Nvidia witnessed an astounding 122% year-over-year increase in revenue, reaching $30 billion. Particularly, its data center business exhibited exceptional performance, registering a remarkable 154% revenue surge year over year, to $26.3 billion. Noteworthy is the 16% quarter-over-quarter growth, underscoring the escalating demand. Looking ahead to Q3, management anticipates revenue hitting $32.5 billion.
Challenges in Doubling Nvidia’s Stock Value
To envision Nvidia’s stock doubling, the company would need to attain a market value of $5.2 trillion, a goal that appears daunting, especially within a year’s timeframe. The rationale behind this skepticism lies in the fact that Nvidia’s stock price already embeds the company’s substantial growth. Analysis of Nvidia’s valuation metrics reveals that Wall Street has factored in approximately 33% earnings growth until the close of its fiscal year.
Despite an impressive 168% rise in earnings per share (EPS) in Q2, Nvidia is now set to face challenging comparisons due to overlapping strong quarters from fiscal 2024. Furthermore, the current price tag of 50 times trailing earnings and 37 times forward earnings indicates a steep valuation.
Typically, a company of Nvidia’s caliber would trade at around 30 times forward earnings. Hence, the stock not only needs to make up some ground to return to that level but would also require a doubling of its earnings to achieve a stock price doubling.
At Nvidia’s current stock price, the forward EPS forecasts would need to reach $7.08 to justify a valuation of 15 times forward earnings. Given the baseline valuation of 30 times forward earnings, such a scenario would result in the stock price doubling.
However, robust earnings growth predictions are scant, with only one Wall Street analyst offering EPS projections for fiscal 2028, foreseeing earnings of $5.45. This figure still falls short of the requisite $7.08.
While Nvidia may not be on the brink of doubling its stock value in the near future, its steady growth trajectory could potentially lead to significant returns, outperforming the broader market, which tends to double every seven years.
Investors eying Nvidia now may find it to be a stable investment choice, even if rapid stock doubling seems improbable in the short term.
Assessing Nvidia’s Investment Potential
Before delving into Nvidia stocks, it is crucial to consider alternative investment avenues:
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**Keithen Drury has no position in any of the mentioned stocks. The Motley Fool holds positions in and recommends Apple and Nvidia. The Motley Fool maintains a disclosure policy.