NVIDIA (NVDA) has ridden the AI wave like no other company, given the strong demand for its high-performance GPUs. In this article I analyze NVDA’s outlook for 2024 and beyond. Keep reading.
Since last year, NVIDIA Corporation (NVDA) has been the subject of much discussion. The company’s fortunes are tied to the massive boom in artificial intelligence that is predicted to transform the world. NVDA’s stock price has risen 218.1% over the past year as demand for its AI-enabled GPUs has skyrocketed.
In this article I discussed why it might be wise to wait for a better entry point in the stock.
Over the past year, the tech industry’s growing need for AI capabilities has increased demand for GPUs to power large AI models in servers. As companies rush to train and develop their own generative AI models, NVDA GPUs will likely continue to be in demand. Furthermore, demand for its chips is likely to grow further as these generative AI models are deployed.
The market for specialized chips optimized for generative AI is expected to reach $50 billion this year, according to Deloitte. Last month, NVDA launched nearly two dozen new AI-powered tools focused on healthcare at the 2024 GTC AI conference. It also signed deals with Johnson & Johnson and GE Healthcare for surgery and imaging doctor. The company’s expansion into healthcare AI has the potential to generate significant revenues.
NVDA also announced its next generation of AI chips and software at its developer conference. Its next-generation AI GPUs, called Blackwell, are expected to ship later this year. The company also launched a new software platform called NIM, which will help simplify the deployment of custom, pre-trained AI models in production environments.
Here’s what could influence NVDA’s performance in the coming months:
Robust financials
NVDA’s revenue for the fourth quarter ended January 28, 2024 increased 265.3% year-over-year to $22.10 billion. Its non-GAAP operating profit increased 563.2% from the prior-year quarter to $14.75 billion. The company’s non-GAAP net income increased 490.6% year over year to $12.84 billion. Additionally, its non-GAAP EPS came in at $5.16, up 486.4% year over year.
For the fiscal year ending January 28, 2024, NVDA’s revenues increased 125.9% year-over-year to $60.92 billion. Its non-GAAP operating profit increased 310.8% year over year to $37.13 billion. The company’s non-GAAP net income increased 286.2% from the same period last year to $32.31 billion. Additionally, its non-GAAP EPS came in at $12.96, up 288% year over year.
Favorable analysts’ estimates
Analysts expect NVDA’s EPS and revenue for fiscal 2025 to increase 91.4% and 82.7% year over year, to $24.81 billion and $111.29 billion, respectively. EPS and revenues for fiscal 2026 are expected to increase 21.3% and 20.6% year over year, to $30.10 billion and $134.19 billion, respectively.
Similarly, analysts expect NVDA’s EPS and revenue for the quarter ending April 2024 to increase 404.9% and 237.1% year-over-year, to $5.50 billion and $24.25 billion, respectively .
Elongated evaluation
In terms of forward non-GAAP P/E, NVDA’s 35.86x is 43.6% higher than the industry average of 24.97x. Its Forward EV/Sales of 19.54x is 587.2% higher than the industry average of 2.84x. Likewise, its forward EV/EBITDA of 30.89x is 108.6% higher than the industry average of 14.81x.
High profitability
In terms of trailing 12-month EBITDA margin, NVDA’s 56.60% is 504.6% higher than the industry average of 9.36%. Likewise, its asset turnover ratio for the trailing 12 months stands at 1.14x and is 85.3% higher than the industry average of 0.62x. Furthermore, its trailing 12-month return on equity of 91.46% is significantly higher than the industry average of 3.20%.
Solid historical growth
NVDA’s revenues have grown at a CAGR of 54% over the past three years and 39.1% over the past five years. Its EBITDA has grown at a CAGR of 81% over the past three years. Its net income and leveraged FCF have grown at 90.1% and 74.6% CAGR over the past three years.
POWR ratings reflect uncertainty
NVDA has an overall rating of C, equivalent to Neutral in our POWR rating system. POWR ratings are calculated by considering 118 different factors, each optimally weighted.
Our proprietary rating system also evaluates each security based on eight distinct categories. NVDA stock is trading below its 10-day moving average but above its 200-day moving average, justifying its C grade for Momentum.
It has an A grade for sentiment, in line with analysts’ favorable estimates. Her high rating justifies her D rank for Value.
NVDA has a B Quality grade, consistent with its high profitability.
NVDA is ranked 19th out of 90 stocks in the Semiconductor & Wireless Chips industry. Click here to access NVDA’s growth and stability ratings.
Bottom line
Given the potential demand for AI chips, NVDA’s growth is unlikely to be affected given its dominance in advanced chips. Additionally, the company’s new launches, the GB200 superchip and the Blackwell architecture, would help sustain and grow demand due to their higher performance capabilities.
However, the company currently trades at an expensive valuation and competition is heating up, with offers from Intel, Microsoft, Meta, Google, Amazon and AMD going up against those from NVDA.
Given its mixed momentum, it might be wise to wait for a better entry point into the stock.
How does NVIDIA Corporation (NVDA) Can it hold its own against its peers?
NVDA has an overall POWR rating of C, equivalent to a Neutral rating. You can check out these A- and B-rated stocks in the Semiconductor & Wireless Chips industry: Everspin Technologies, Inc. (MRAM), ChipMOS TECHNOLOGIES INC. (IMOS) and Cirrus Logic, Inc. (CRUS). To explore other semiconductor and wireless chip stocks with a buy rating, click here.
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NVDA shares rose $11.11 (+1.25%) in premarket trading on Thursday. Year to date, NVDA has gained 79.65%, compared to a 9.62% gain in the benchmark S&P 500 index over the same period.
About the author: Dipanjan Banchur
Ever since he was in primary school, Dipanjan was interested in the stock market. This led him to earn a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
Moreover…
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