Stock Market

Nvidia (NASDAQ:NVDA) stock has had a spectacular run, but there is no guarantee that its success will continue.

Competitors like Intel (NASDAQ:INTC) and AMD (NASDAQ:AMD) are rapidly innovating and introducing more advanced chips that may eventually surpass Nvidia’s offerings.

In this article, we will delve into the potential risks that may limit Nvidia’s growth, and evaluate how much further upside is available to the company.

Recent Nvidia Updates and News

As the Nasdaq-100’s rebalancing approaches, investors closely monitor tech stocks, particularly the “Magnificent Seven,” including Nvidia.

With NVDA’s significant growth driven by the AI boom, investors ponder its potential as the index reshuffles on July 24.

NVDA stock had a challenging week, down nearly 1% because of the upcoming rebalancing. However, it has performed well overall, up over 5% in the past week, hitting a record high at $480 per share, showing resilience against market headwinds.

Additionally, Nvidia stock received positive coverage from Wolfe Research analysts, who initiated coverage with an “outperform” rating and set a price target of $570 per share.

This represents a 21% potential upside compared to the previous closing price and is higher than the consensus analyst price prediction of $421.58 per share.

Wall Street on Nvidia’s Financials

Nvidia’s Q1 results surpassed expectations, with $7.2 billion in revenue, driven by powerful performance in the data center segment because of AI demand. Its Q2 guidance of $11 billion revenue surprised analysts, who projected around $7.1 billion.

Nvidia stock is significantly overvalued compared to its peers and the tech sector. Its P/E ratio is 4.5 times higher and its P/S ratio is 5 times higher than its competitors.

Despite Nvidia’s high valuation, its growth potential makes it an appealing investment. If the company achieves its projected revenue of $43 billion in fiscal 2024, its forward P/S ratio becomes more reasonable at 26.

With the potential for continued strong growth, driven by opportunities in AI data center chips, Nvidia’s revenue may exceed expectations for years ahead, making it an attractive prospect for investors.

What Now?

Despite Nvidia’s bloated valuation, value-focused investors might wait for a 20% pullback before considering a purchase.

The market is likely to favor Nvidia for a while due to its ambitious and innovative approach in AI applications, potentially leading NVDA stock to continue its upward trend in 2023.

Risk-tolerant traders may hold Nvidia shares, but should be prepared to exit quickly if overall sentiment shifts.

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.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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