The “Magnificent Seven” group of stocks had an absolutely smashing year in 2023, outperforming both the Nasdaq Composite and the S&P 500. No stock in the tech industry experienced more extraordinary growth than Nvidia (NASDAQ: NVDA), the unequivocal leader in the artificial intelligence (AI) revolution.
In 2023, Nvidia’s stock surged an astonishing 239%, propelled by its unrivaled performance in the burgeoning generative AI market. The company’s revenue escalated by a remarkable 206% in the third quarter compared to the prior year, largely attributed to the burgeoning prices of its highly sought-after graphics processing units (GPUs) and accelerators, resulting in a substantial surge in profits. Net income under GAAP skyrocketed more than 13-fold from $680 million to $9.24 billion, representing an almost 50% boost to its profit margin from the comparable quarter in the previous fiscal year.
Despite such remarkable gains, Nvidia’s valuation has not become overstretched but, quite contrarily, appears more reasonable than it has in a long time due to its soaring profits. Trading at a modest price-to-earnings ratio of 26 based on estimates for the fiscal year ending in January 2025, the stock potentially provides more upside as estimates could be revised higher in the upcoming months, reflecting Nvidia’s consistent outperformance.
It is not surprising that bullish sentiment towards Nvidia is widespread, with the average Wall Street analyst anticipating a 20% surge in the stock’s value in 2024, according to TipRanks. Moreover, all 36 analysts covering the stock expect it to gain ground this year, with 32 recommending a buy and four suggesting a hold.
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Nvidia’s Momentum: Unstoppable
Nvidia’s recent product release at the CES trade show reaffirms the stock’s potential to continue its upward trajectory. The announcement encompassed a host of new products and partnerships, spanning diverse chip categories and industries, signaling the company’s unwavering commitment to maintaining its dominance in the AI race.
Notably, the company revealed a new series of GeForce RTX 40 Super GPUs designed to enhance gaming and generative AI performance and secured partnerships with gaming giants like Ubisoft and Tencent to utilize its new Nvidia Ace AI game-making tool.
In addition, Getty Images, one of the largest repositories of stock photos globally, unveiled a new generative AI service powered by Nvidia Picasso, an AI foundry specializing in visual design. This latest venture enables users to generate 4K imagery from text using an AI model trained on Getty Images’ extensive photo catalog.
Further underlining its widespread adoption, biotech company Amgen has employed Nvidia’s DGX SuperPOD to train sophisticated models aimed at accelerating drug discovery and development.
The potential for Nvidia’s chips extends across virtually every industry and business as the advent of generative AI has far-reaching implications. Its technology is even deployed in the retail sector, contributing to the prevention of organized theft and offering personalized shopping advice.
Moreover, Nvidia is posing a challenge to Intel with the introduction of three new chips for AI PCs, countering the anticipated challenge from a company seeking to contest Nvidia’s supremacy in the AI domain.
Nvidia’s Prospective Growth in the AI Market
At the CES event, Nvidia made a splash with its series of announcements that reinforced its standing in the AI market. Notably, comments from industry leaders such as Oracle and OpenAI shed light on an acute shortage of AI components, signifying the burgeoning potential of the generative AI sector. This points to an ever-expanding landscape for Nvidia.
Financial Evaluation of Nvidia
When evaluating the financials, Nvidia stands out with a price-to-earnings (P/E) ratio in line with the broader market concerning the coming year’s earnings. This alludes to a compelling investment opportunity, striking a chord with potential buyers. The company’s trajectory hints at an undervalued stock with a high growth potential.
Evaluating Nvidia’s Future Growth Potential
Amidst the consensus among numerous tech CEOs that generative AI is slated for sustained growth, Nvidia is poised to leverage this trend to its advantage. The stock exhibits the potential for substantial upward movement, given the continuing expansion of generative AI, as foreseen by industry leaders.
Delving into the Investment Aspect
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia, Oracle, and Tencent. The Motley Fool recommends Amgen and Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short February 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
