Key points
- NVIDIA had another quarter of mind-blowing growth and raised guidance, sending shares to new highs, but how much higher can they go?
- Analysts are already raising their targets, pushing the market higher.
- A move to $1,000 could happen before mid-year, and there are other opportunities investors should be aware of.
- 5 titles we prefer to NVIDIA
Traders and investors fear a NVIDIA NASDAQ:NVDAThe guided market correction can put these fears to rest. The company’s fourth quarter results reveal that the AI market is still strong, stronger than expected and accelerating. The results can be described as nothing more than a blowout on top of four quarters of mind-blowing results and improved guidance. The bottom line is that the price action jumped 15% on the news, broke out of a consolidation, and set a new high. The technical outlook alone suggests that a move to $1,000 is imminent and analysts are on board.
“Accelerated computing and generative artificial intelligence have reached the tipping point. Demand is increasing across companies, industries and countries around the world,” said Jensen Huang, founder and CEO of NVIDIA.
Analysts have been slow to release early revisions, but they are coming. The first ones come from JPMorgan Chase and Citigroup, which raised their price targets, extending the trend set into 2023. Several firms have set targets at or above the $1,000 level as of New Year’s Day, with the highest target , $1200, set by Loop Capital in mid-February. As it stands, NVIDIA is the second most updated stock over the past twelve months and will likely reach the No. 1 position soon. The price target is up 220% over the past year and will likely continue to rise.
NVIDIA had a great quarter, leading higher
The risk with the release of NVIDIA stock in the fourth quarter was an expectation of incredibly high revenue and earnings growth. However, the company’s net revenue of $22.1 billion, up 265% year-over-year, beat consensus estimates by as much as 750 basis points.
Gains were driven by all four operating segments, led by a 410% increase in the data center group. Gaming, the company’s core business, is unchanged sequentially but growing 56% year-over-year as the end market normalizes. Pro Visual grew 105% and the Automotive segment, down 4% year-over-year, showed sequential improvement of 8% as major OEMs move into the new era of AI.
Margin news is also conducive to rising stock prices. The company’s revenue increase is leveraging significant margin gains that are showing up in the bottom line. GAAP earnings increased 765% year over year and adjusted earnings increased 486%, providing ample liquidity and free cash flow for the company. Margin strength is expected to continue into F2025 and may improve again. Analysts at Loop Capital (who forecast fourth-quarter strength) expect the company’s business to continue to accelerate and exceed consensus expectations for the next 2-3 years.
Forecasts are also favorable, predicting first quarter 2025 revenue to accelerate sequentially by $2 billion or nearly 1000 basis points. Even more significantly, the guidance is about 1000 basis points above Marketbeat.com analyst consensus, playing into the idea that analysts will raise their estimates and price targets for the stock.
An NVIDIA cash flow catalyst
NVIDIA’s cash flows have grown exponentially over the year, providing a solid foundation for improved capital returns. The company already pays a dividend and buys back shares, but in token amounts. The dividend is just enough to maintain the interest of companies and funds that invest in dividends, while buybacks have not compensated for the dilutive action during the year.
Investors have a significant opportunity because the company’s cash position has doubled, cash flow is robust and debt is under tight control. NVIDIA could easily increase the distribution amount, pay a special dividend, or increase stock repurchases. There is also the possibility of a stock split now that it has reached the stratosphere. Regardless, business is good and has led to a doubling of equity capital in F2024 that could be repeated in 2025.
The technical outlook: NVIDIA moves to new highs
Price action in NVIDIA was mixed immediately following the report, but once profit takers took over, it moved sharply higher in pre-market trading. The market is up about 15% and is trading at a new high with a high probability of continuing to rise in the short, medium and long term. The risk is that profit takers take a step back once the session opens and limit earnings to around $765. In this scenario, NVIDIA could enter a consolidation before continuing its upward trend. However, if the NVIDIA market can sustain the bullish momentum now, it will likely reach the $1,000 level before the middle of the year.
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