After skyrocketing from $150 to over $900 per share since the start of 2023, some think Nvidia (NASDAQ:NVDA) has generative artificial intelligence growth baked into Nvidia stock?
It may seem that way on the surface. Valuation-conscious analysts, commentators, and investors agree: NVDA stock is overvalued. They may even try to recommend to you “AI value stocks” in its place.
NVDA may seem expensive on a screener, but its growth prospects suggest otherwise. The “AI gold rush” in Big Tech is a major factor. While it’s unclear which tech titan will ultimately prevail, just remember that Nvidia is still the one selling the most picks and shovels.
Nvidia Stock: Breaking Down Competition and Valuation Concerns
Yes, it’s not just valuation that has investors wary of buying into NVDA at record highs. Concerns about competition have also been top of mind. However, as we have discussed previously, concerns about the impact of competition on Nvidia’s future growth may be overblown.
The expected growth in the AI chips industry should offset increased competition for Nvidia.
Just as there is a rebuttal to competition concerns, there is also a counter to valuation and growth concerns with Nvidia stock. The market’s optimism may not accurately reflect the company’s future prospects.
NVDA may not be cheap at 75.6 times trailing twelve month earnings, but compared to the stock’s forward valuation of 36.4, shares are clearly in “growth at a reasonable price” territory.
As for perceived uncertainty about growth in the coming fiscal years, much like we hinted above, it’s all about an important factor that’s still in play.
Just What the Customer Ordered
Last month, Nvidia unveiled its latest, greatest line of AI chip products: the Blackwell series. As stated in the Blackwell news release, Blackwell GPUs are the world’s most powerful chips.
Tech sector heavyweights are looking to snap up as many as possible, as part of their respective AI infrastructure build out efforts. Don’t underestimate how much Blackwell could help to extend Nvidia’s growth runway.
As analysts at CFRA recently argued, “Magnificent Seven” Big Tech firms are spending a total of $175 billion on capital expenditures this year. This represents a 25% increase compared to 2023.
Much of this spending will be of high-end, high-power chips like the Blackwell processors. Capital expenditure growth is likely to keep growing in 2025.
So, what does this mean for future results, and the future performance of Nvidia stock? For one, Nvidia is well-positioned to report strong results for the current fiscal year (ending January 2025).
Results could even top consensus of $111.3 billion in revenue/$24.81 per share in earnings. The high end of forecasts call for $155.8 billion in revenue, and earnings north of $30 per share. In the coming fiscal year, ending in January 2026, elevated growth may persist.
NVDA Remains a High-Potential, Less-Chancy Wager
While there are no guarantees in investing, there are situations where risk/reward is more in your favor. It remains unclear which particular tech titan will prevail in the “AI wars” currently taking shape.
Early movers in generative AI software could stay on top. Other major players currently playing catch up may end up leaving said early movers in the dust.
However, no matter who wins or who loses, Nvidia could continue to profit greatly from this battle for control of this new tech frontier.
Nvidia’s earnings could more than double in FY2025. In FY2026, earnings could come in at nearly $42 per share.
Even without additional multiple expansion, this could be enough to send NVDA to not just $1000 per share, but up to $1500 per share as well.
With this clearer path to higher prices, Nvidia stock remains a solid buy.
NVDA stock earns an A rating in Portfolio Grader.
On the date of publication, Louis Navellier had a long position in NVDA. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.