Shares of Nvidia (NVDA) delivered gravity-defying returns in
2023, soaring 240% to deliver 10x the returns of the S&P 500 Index ($SPX)
on the year. In the process, NVDA became the first semiconductor designer
company to join the ranks of trillion-dollar companies amid the artificial
intelligence (AI) boom.
While 2024 has started on a somber note for U.S. tech stocks
- sector giant Apple (AAPL) has faced three downgrades within the first half of
January - Nvidia has continued its upward trajectory. Up over 16% year-to-date,
NVDA is among the top five S&P 500 gainers.
Can Nvidia continue its run higher and eventually hit the
milestone of $2 trillion market cap by the next year? Here’s the 2025
prediction for NVDA, plus the key factors that could drive the shares over the
next couple of years.
What’s Driving the Rally in NVDA Stock?
The rally in Nvidia stock has been driven by the higher
sales of its AI chips. The company posted revenues of $18.1 billion in the most
recent quarter, which was over triple what it sold in the corresponding quarter
of the prior year, and forecast revenues of $20 billion at the midpoint for the
current quarter.
Nvidia's net income also soared to a record $9.24 billion in
the fiscal third quarter of 2024 - which, for context, was over 12x the $680
million that it posted in the year-ago quarter.
Nvidia Stock 2025 Prediction
Nvidia is quite optimistic about its business outlook for
2025. During the fiscal Q3 2024 earnings call, in response to an analyst
question on whether the company’s Data Center segment (which sells the AI
chips) would “grow even in 2025,” CEO Jensen Huang replied in the affirmative.
“Absolutely believe that data center can grow through 2025.
And there are, of course, several reasons for that. We are expanding our supply
quite significantly. We have already won the broadest and largest and most
capable supply chain in the world,” emphasized Huang
NVDA Stock Target Price 2025
Wall Street analysts are also quite bullish on NVDA, and it
has received a consensus rating of “Strong Buy.” Of the 36 analysts covering
the stock, 30 rate it as a “Strong Buy,” while 3 say it's a “Moderate Buy.” The
remaining 3 rate the stock as a “Hold.”
Nvidia’s mean target price of $646.54 is 13.4% higher than
the stock's current price. Its Street-high target price of $1,100, however,
implies the shares roughly doubling from these levels.
Can Nvidia’s Market Cap Reach $2 Trillion?
For Nvidia’s market cap to reach $2 trillion, the shares
need to rise just about 45%. That price action would not look unreasonable,
considering the stellar returns that the stock has delivered over the last
decade - a time frame where it has risen at a CAGR of 62%.
While the usual boilerplate disclaimer goes that “past
performance may not be repeated in the future,” Nvidia has defied all laws of
gravity, and the stock’s CAGR has been 61% and 70% over the last 3-year and
5-year periods, respectively.
That said, even as the momentum looks positive for NVDA
stock, we need to analyze the risk-return equation.
What Risks Does Nvidia Face?
A possible plateau in demand for AI chips beyond a couple of
years is a potent risk for Nvidia, and so is the launch of AI chips from
competitors. As competition increases and rival companies come up with similar
chips, the premium pricing for AI chips might also fall.
Rising U.S.-China tensions are also a formidable risk for
Nvidia. While the U.S. has restricted the sales of several Nvidia chips to
China, reports suggest that arms of the Chinese military have still been able
to grab chips like A100 and H100, although exports to China have been banned.
Nvidia has been quite circumspect on its China business,
which accounts for between 20%-25% of its Data Center revenues. During the
fiscal Q3 earnings call, CFO Colette Kress said, “The export controls will have
a negative effect on our China business, and we do not have good visibility
into the magnitude of that impact even over the long term.”
In terms of valuation, while Nvidia’s next 12-month
price-to-earnings multiple of 28.7x looks mouthwatering - especially
considering the expected revenue and profit growth over the next year - the
outlook beyond 2025 is somewhat hazy.
That said, I believe that if you are a growth investor
looking to play themes like AI, the metaverse, and autonomous driving, Nvidia
is one name that should be a part of your portfolio. The company has gotten the
better of its competitors over the years, and I have no reason to believe that
things will change anytime soon.
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As for Nvidia’s market cap reaching $2 trillion, I believe
it looks like a matter of “when” and not “if” - and even if the demand for AI
chips slows down, the company has several other growth levers to support the
next leg of its expansion.
On the date of publication, Mohit Oberoi had a position in:
AAPL , NVDA . All information and data in this article is solely for
informational purposes. For more information please view the Barchart
Disclosure Policy here.
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"Nvidia's 2023 Success and 2024 Prospects: Can the Rise
Continue?"
Nvidia (NVDA) witnessed an exceptional surge of 240% in
2023, outperforming the S&P 500 Index by 10 times. The company achieved the
remarkable feat of becoming the first trillion-dollar semiconductor designer
amid the artificial intelligence (AI) boom.
As 2024 unfolds with a somber tone for U.S. tech stocks,
including Apple (AAPL) facing downgrades, Nvidia maintains its upward
trajectory, boasting over a 16% increase year-to-date and ranking among the top
S&P 500 gainers.
The article delves into whether Nvidia can sustain its
growth and potentially reach a $2 trillion market cap by the next year. It
explores the factors driving the rally in NVDA stock, primarily the soaring
sales of its AI chips. With revenues reaching $18.1 billion in the most recent
quarter, triple the figures from the previous year, and a forecast of $20
billion for the current quarter, Nvidia's financial performance has been
stellar.
The CEO, Jensen Huang, expresses optimism about the business
outlook for 2025, particularly in the Data Center segment selling AI chips. The
article notes Wall Street analysts' bullish stance, with a consensus rating of
"Strong Buy" and a mean target price of $646.54, indicating a 13.4%
increase from the current stock price. The Street-high target of $1,100 implies
a potential doubling of the shares.
To achieve a $2 trillion market cap, Nvidia's shares need to
rise approximately 45%, a plausible scenario given the stock's impressive
historical returns. However, potential risks, such as a plateau in AI chip
demand, competition from rivals, and U.S.-China tensions, are highlighted. The
article acknowledges the uncertain outlook beyond 2025.
The author, while recognizing the positive momentum for NVDA
stock, advises growth investors interested in AI, the metaverse, and autonomous
driving to consider including Nvidia in their portfolios. Despite potential
challenges, the article concludes that Nvidia's market cap reaching $2 trillion
seems more a matter of "when" than "if," supported by the
company's growth levers and ongoing success.