Key points
- NVIDIA just came off its all-time high price; digging deeper will show you why it could continue to go even higher.
- Goldman analysts see specific macro trends that lead them to expect a double-digit price target increase for NVIDIA.
- Even if other competitors look cheaper, there’s a reason the market has priced NVIDIA stock this way relative to the industry.
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Today’s market seems to be everywhere in the world of technology stocks. This is especially true with standout performances from names like Nvidia Corporation NASDAQ:NVDA, which continue to surpass their all-time high prices as if there were no resistance to their prices. While some may be dissuaded from purchasing a high-priced winner, professionals understand that the roof is far from priced out.
Wall Street professionals are confidently pointing to a higher price for NVDA stock. This suggests that the wave that began a couple of quarters ago is far from over. You’re about to find out why Nvidia will continue to deliver successful financial results in the coming months. They are the same reasons why price targets are being raised higher and higher.
Furthermore, markets are showing no signs of concern in the wake of the stock’s massive rally recently. All you need is to know how to read the language of the market which two simple ratios will reveal. But before you put yourself in the shoes of translating this message, you first need to understand what’s going on under the hood.
Follow the money
According to its report on the macroeconomic outlook for 2024, The Goldman Sachs Group Inc. NYSE:GS and its analysts were predicting a turning point – more like a turning point – in the manufacturing sector of the US economy. This makes sense once you realize what the Federal Reserve (Fed) is planning behind the scenes.
Proposing a change in its policy, the Federal Reserve is signaling a cut in interest rates in the coming months. How soon, you ask? According to the FedWatch tool of CME Group Inc. NASDAQ: ECMtraders are starting to price in these potential rates by May or June of this year.
Lower interest rates offer a more attractive proposition for foreign nations to purchase American-made exports. This is just good old economics. However, to have enough products to export, these companies must produce them. That’s where Goldman’s expected success comes from, but here’s how this is good for Nvidia.
Since Nvidia has unique value in its graphics processing units (GPUs), the need to optimize the efficiency of these manufacturers falls on Nvidia to provide them with these chips powerful enough to pre-design assembly processes and factories even before the first dollar. of capital expenditure (CAPEX) runs out.
Now christened Extended Reality (XR), these GPUs are transforming the way industrial names work by optimizing design speeds and simulation capabilities and, of course, increasing margins for everyone.
Do you see the connection? Higher manufacturing activity could be directly linked to demand for Nvidia’s XR chips. But don’t take this idea literally; check where the money is going.
X on the map
It should come as no surprise to learn that the same Goldman analysts who had been pointing to a manufacturing breakout are now raising their NVDA price targets to $875 per share. This reflects a net upside of up to 11% from the stock’s current trading level.
Some value investors might argue that other names in the semiconductor industry might be a better proposition thanks to their lower prices, names like Intel Co. NASDAQ: INTC AND Micron Technology Inc. NASDAQ:MUwhich trades at much lower multiples than Nvidia, could represent a trap rather than an opportunity.
Starting with size, the market is screaming at you how confident it is in Nvidia. With a market capitalization of $1.7 trillion, it is well above Intel’s $188 billion and Micron’s $87 billion. The question now revolves around where the market is willing to price these shares and what that decision means.
Today the semiconductor industry trades at an average price-to-book (P/B) ratio of 8.6x, and what you’re looking for are positive outliers—in other words, stocks that the market is willing to pay for a premium rating. Remember the saying “It has to be expensive for a reason” here.
NVDA shares are valued at 53.9x P/B, while Intel and Micron trade for 1.7x and 2.0x multiples, respectively. The opposite also applies here: “It has to be cheap for a reason.” There is nothing against the rise of Intel and Micron; the whole market says that the explosive demand that leads to fantastic financial results is found today only in Nvidia.
Now that you have a better idea of why this willingness to overpay is, the only question is: is it too high a price to consider for your new addition to the checklist?
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