Nvidia (NASDAQ: NVDA) has been one of the hottest companies of 2024, with its stock price soaring more than 120% in the past year alone. The graphics chipmaker has become the poster child for the AI revolution, as its powerful GPUs have proven essential for training and running large models. But after such an impressive run, I suspect many investors are wondering: where is this AI giant? Nasdaq How does the composite index go from here?
Can the momentum continue?
The positive case here is pretty clear: the AI boom might still be in its early stages, and the company remains well-positioned to capitalize on it. The latest quarterly results certainly back up this view: revenue more than doubled year-over-year to $30.04 billion, while earnings per share rose a staggering 419%.
With OpenAI, Microsoft, Google, And even as others continue to invest heavily in AI infrastructure, demand for next-gen GPUs shows no signs of slowing. Many analysts argue that with a price-to-earnings (P/E) ratio of 55 and a price-to-sales (P/S) ratio of 30 times, the valuation is relatively justified given its growth trajectory and dominance in AI chips. The recent launch of its next-generation AI platforms Hopper and Blackwell could fuel the next leg up.
On the other hand, there are those who suggest that much of the future growth is already reflected in the current share price. The meteoric rise has pushed the market capitalization to a staggering $2.9 trillion. This makes it the third most valuable company in the world, behind only Apple and Microsoft.
There are concerns that the chip market could face oversupply issues in the coming years as competitors such as AMD and Intel Increase production. This could put significant pressure on profit margins and the growth rate. As history has shown, the cyclical nature of the semiconductor industry is another major risk to consider. When investor enthusiasm fades, the stock price can just as quickly move in the opposite direction.
However, what worries me most are the geopolitical tensions between the United States and China. Restrictions on the export of advanced chips could seriously affect sales to Chinese customers.
A few important months
In my view, the stock price is likely to remain quite volatile in the near term as the market digests its massive rise and debates its valuation.
However, I believe the long-term outlook remains encouraging. The company's technology leadership, strong execution, and exposure to multiple growth markets beyond AI (gaming, automotive, etc.) should allow it to grow to its valuation over time.
Analysts expect annual revenue to rise 85% to $108 billion next year, and earnings to increase 70% to $12 a share. If management can meet or exceed these lofty expectations, it could easily propel the stock to new highs.
That said, I expect returns to moderate at some point. A more realistic target might be an annualized return of 20%-30% over the next few years, assuming the company can maintain its competitive advantage and AI momentum persists. So while Nvidia's current share price gives me pause, I think the company's growth prospects and industry positioning justify a premium. I'll be buying shares at the next opportunity.