(Bloomberg) — Just 10 days into the new year, a familiar stock is back near the top of the leaderboard: Nvidia Corp.
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After struggling for months to break above $500 a share, last year’s best performer in the S&P 500 has pushed decisively into benchmark territory with a nearly 9% advance. With its market capitalization now at more than $1.3 trillion, it is less than the $250 billion of Amazon.com Inc., the fourth-most valuable company in the index.
The fact that investors are still bidding up Nvidia stock after it more than tripled in 2023 is a testament to how high demand expectations for its chips used in artificial intelligence computing remain. Nvidia’s revenue jumped 206% in the third quarter, and is expected to rise 232% in the fourth quarter, according to data compiled by Bloomberg.
“It’s a very large, fast-growing market, and they dominate it,” said Michael Sansuttera, chief investment officer at Sylviant Capital Management. “You can look forward to 2024 as another strong year of returns for Nvidia.”
Nvidia shares rose as much as 2.3% in intraday trading on Wednesday, with a three-day advance of 11%.
On Tuesday, in an interview with JPMorgan analyst Harlan Sur, Nvidia CFO Colette Kress reiterated CEO 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 took a hit 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 has responded by creating less capable versions of its graphics chips for personal computers, and has promised that similar versions for data center use will arrive this year.
Earlier this week, Nvidia announced three new desktop graphics chips with plug-ins that will allow for better use of AI on personal computers without having to rely on remote services that can be accessed over the Internet. The Santa Clara, California-based company is expected to report earnings late next month.
Nvidia’s booming profits, which are expected to reach nearly $28 billion in the current fiscal year, helped cushion its valuation despite its rising stock price. Although the valuation has fallen to about 27 times expected earnings from 55 times expected earnings in May, the stock is not cheap at all. The Nasdaq 100 is priced at about 24 times forward earnings.
When measuring Nvidia’s current price against its past performance, the stock looks much more expensive. On a trailing basis, Nvidia is priced at about 68 times earnings, while the Nasdaq 100 is trading at about 33 times.
“I still like the stock,” said Shanna Cecil, CEO of Banreon Capital Management, citing its valuation compared to revenue growth. “I think he can keep the momentum going.”
Even Nvidia’s biggest fans don’t expect the stock to repeat its performance in 2023. The average price target on Wall Street is about $650, which implies an upside of about 20% from current levels, one of the widest margins among the largest US technology companies.
“If our benchmark for stock performance is 200% every year, then we really need to re-check our expectations,” Cecile said, adding that she still sees Nvidia outperforming the broader market this year. “This, to me, is still a stock worth holding.”
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Dividends are due on Wednesday
–With assistance from Ian King, Tyagaraju Adinarayan, and Rhea Rao.
(Stock movements updates all the time.)
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