Just 10 days into the new year and a familiar stock is back near the top of the leaderboard: Nvidia Corp.
After struggling for months to break out above $500 a share, last year’s best performer in the S&P 500 has pushed decisively into record territory with a more than 7% advance. With its market value now at more than $1.3 trillion, it’s about $250 billion shy of Amazon.com Inc., the fourth-most valuable company in the benchmark.
The fact that investors are still bidding up Nvidia’s stock after it more than tripled in 2023 is testament to how high demand expectations continue to be for its chips used in artificial intelligence computing. Nvidia’s revenue jumped 206% in the third quarter and is projected to rise 232% in the fourth quarter, according to data compiled by Bloomberg.
“This is a very large, fast growing market and they’re dominating,” said Michael Sansoterra, chief investment officer at Silvant Capital Management. “You could look forward to 2024 as another solid year of returns for Nvidia.”
On Tuesday, in an interview with a JPMorgan analyst, Nvidia Chief Financial Officer Colette Kress reaffirmed Chief Executive Officer Jensen Huang’s assertion that the company believes it can continue to grow in calendar 2025 as demand for AI-related products remains strong.
Nvidia was dealt a blow last year when the Biden administration tightened restrictions on chip exports to China, threatening its access to a market that accounted for 21% of the chipmaker’s sales in the last fiscal year. Nvidia responded by creating less-capable versions of its graphics chips for PCs and has promised that similar ones for data center use will arrive this year.
Earlier this week, Nvidia announced three new desktop graphics chips with extra components that will allow for better use of AI on personal computers without having to rely on remote services accessed over the internet. The Santa Clara, California-based company is expected to report earnings late next month.
Nvidia’s booming profits, projected to weigh in at nearly $28 billion in the current fiscal year, have helped temper its valuation despite its soaring stock price. Even though the valuation has fallen to about 27 times projected profits from 55 times in May, the stock is far from cheap. The Nasdaq 100 index is priced at about 24 times forward earnings.
When measuring Nvidia’s current price against its past performance, the stock looks far more expensive. On a trailing basis, Nvidia is priced at about 68 times profit, while the Nasdaq 100 trades at about 33 times.
“I still like the stock,” said Shana Sissel, chief executive officer of Banrion Capital Management, citing its valuation relative to revenue growth. “I do think it can keep the momentum up.”
Even Nvidia’s biggest fans don’t expect the stock to repeat its 2023 performance. The average price target on Wall Street sits at about $650, implying a gain of 22% from current levels, one of the widest margins among the biggest US technology companies.
“If our standard for a stock to perform is 200% every year, then we really need to recheck our expectations,” said Sissel, adding that she still sees Nvidia outperforming the broader market this year. “That, to me, is still a stock worth holding.”
Tech Chart of the Day
Coinbase Global Inc., the poster child of crypto-linked stocks, has risen considerably above analyst price targets ahead of a highly anticipated decision by the US Securities and Exchange Commission on whether to approve a spot-Bitcoin exchange-traded fund. The run has been so powerful that the average return potential based on analyst targets suggests more than a 20% slump in the stock over the next 12 months.
Top Tech News
- A highly anticipated decision by the US Securities and Exchange Commission on whether to approve a spot-Bitcoin exchange-traded fund quickly morphed into a major cybersecurity incident on Tuesday.
- Taiwan Semiconductor Manufacturing Co.’s fourth-quarter revenue beat estimates of a decline, as demand from artificial intelligence players helped offset sluggish smartphone and laptop chip sales.
- ByteDance Ltd.’s TikTok became the first app to surpass $10 billion in cumulative consumer spending, helping power mobile app sales to a new high in a year revenue from games was down, according to the latest annual report by data.ai.
- Global chip sales rose for the first time in more than a year in the latest indication of demand starting to rebound on the back of emerging technologies such as artificial intelligence.
- Apple Inc. returned to an annual list of the 100 best places to work after falling off last year, but the ranking wasn’t as rich with technology firms after layoffs roiled the sector.
Earnings Due on Wednesday
- No major earnings expected
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