Nvidia’s (NVDA) uptrend in the first half of the year has paused, with the stock failing to reach new highs in recent months. Following the highly anticipated second-quarter earnings report in late August, Nvidia stock experienced a pullback due to elevated investor expectations for hypergrowth, despite the strong results it posted. I believe this price correction offers a compelling opportunity. In this article, I will outline five reasons for my bullish view on Nvidia, focusing on strong revenue growth (despite tough comparisons), AI dominance, valuation, technical indicators, and Wall Street analyst consensus.
Let's dive into it.
1. Strong revenue growth for Nvidia despite tough comparisons
The first point supporting a prolonged bullish thesis for Nvidia is the solid revenue growth demonstrated in its second-quarter results, despite challenging comps.
Nvidia posted 122% year-over-year growth in the most recent quarter, reaching revenue of $30 billion, a remarkable achievement considering the company’s already substantial revenue base. While this growth rate is lower than the 200% increase in the previous quarter, the triple-digit absolute growth in top line is still impressive. This underscores Nvidia’s ability to significantly grow its revenue even when compared to its past performance.
While the post-Q2 stock decline can be attributed to overly high expectations, it is critical to note that Nvidia continues to deliver sequential quarterly revenue growth, indicating strong demand for its products, especially in AI and data centers. This level of sustained growth on such a large scale highlights Nvidia’s ability to capture market share and drive long-term revenue expansion. Nvidia’s Q3 sales guidance of $32.5 billion further reflects the company’s confidence in maintaining its growth trajectory.
2. Nvidia's dominance in the AI and data center market
The second bullish point is Nvidia's continued dominance in the data center GPU space, where it holds a 98% market share in this fast-growing sector, according to HPC Cable.
Demand for AI-powered solutions is booming across industries, and Nvidia’s H100 Hopper GPU is becoming crucial for enterprise cloud applications that require massive computing power. Beyond hardware, Nvidia masters AI through its software ecosystem, including CUDA and cuDNN, offering a comprehensive AI solution. As highlighted on Nvidia’s earnings call, the company aims to transform the $1 trillion data center market by moving from traditional computing to accelerated computing using advanced data processing libraries.
Looking ahead, Nvidia plans to launch its Blackwell architecture in Q4 fiscal 2025, offering greater power and efficiency than Hopper. Designed to meet the demands of hyperscalers and AI developers, Blackwell will provide end-to-end solutions, including chips, systems, networking, and software. This launch is a key catalyst that will further cement Nvidia’s leadership in AI.
3. Nvidia appears to be attractively priced when adjusted for growth
The third point concerns Nvidia’s valuations. At first glance, its P/E ratio of 54.7x and forward P/E ratio of 42.5x may seem high, especially when compared to the semiconductor industry average of 23.7x. However, my bullish stance is reinforced by Nvidia’s growth prospects, as the company is expected to achieve 106% revenue growth and 119% EPS growth this year.
Furthermore, analysts expect Nvidia’s earnings per share (EPS) to grow at a compound annual rate (CAGR) of 36.6% over the next three to five years. This impressive growth rate, combined with the current forward P/E, results in a reasonable forward price-earnings-growth (PEG) ratio of 1.16.
Traditionally, undervalued stocks have a PEG ratio below one, but NVIDIA’s PEG ratio is more favorable than all other Magnificent 7 stocks. Among this group, Alphabet (GOOGL) and Meta (META) have the next lowest PEG ratios, at 1.28 and 1.48, respectively. While this doesn’t necessarily mean NVIDIA is undervalued compared to its Big Tech peers, it does suggest that the stock doesn’t look too expensive by this metric.
4. NVDA moving averages suggest a bullish trend
The fourth point that reinforces the bullish thesis is closely tied to the sentiment around Nvidia’s stock performance. Despite recent fluctuations, the company’s triple-digit revenue growth indicates that it is still in a hyper-growth phase. However, with a staggering 2,700% share price increase over the past five years, concerns about a potential bubble persist.
In this context, I believe that focusing on long-term moving averages is essential to gauge momentum. This provides a clearer view of Nvidia’s trend amid daily volatility, especially given the stock’s 48% annualized volatility. NVDA stock’s uptrend is supported by a current trading price above its 200-day moving average of $92.80.
5. Wall Street remains overwhelmingly bullish on NVDA
Finally, the fifth point that contributes to my favorable outlook for Nvidia is the overwhelmingly optimistic consensus among Wall Street analysts. Of the 42 analysts covering the stock, 39 have issued buy recommendations, while the remaining three have a hold rating. Moreover, the average price target among these analysts is $152.44, indicating an upside potential of nearly 25%.
One notable analyst is Rosenblatt’s Hans Mosesmann, who has the highest price target on Wall Street for Nvidia, $200 per share. His optimism persisted after second-quarter results, which he called strong, driven by growth in Hopper AI and networking. Although gross margins dipped slightly due to updates on Blackwell chips aimed at improving yields, Mosesmann remains confident. He notes that despite potential near-term weakness in the share price, bullish sentiment is supported by a P/E multiple of 44x based on fiscal 2027 EPS.
Conclusion
In this article, I have summarized five key points that support my buy stance on Nvidia. I believe the stock's recent weakness presents an attractive buying opportunity for investors eager to take advantage of its strong growth trajectory.
While some short-term headwinds may persist, Nvidia’s second-quarter results suggest that its growth trajectory will continue strongly as the company consolidates its market dominance and prepares for the upcoming launch of the Blackwell architecture. Given the potential for further growth in the coming years, the current high valuation can be justified, and Wall Street believes the same.
Divulgation
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