NVIDIA ( NVDA ) has caught the AI wave like no other company, given the high demand for its high-performance GPUs. In this piece, I analyze NVDA's prospects for 2024 and beyond. Continue reading.
Since last year, NVIDIA Corporation (NVDA) has been the subject of many discussions. The company's fortunes have been tied to the massive AI boom predicted to transform the world. NVDA's stock price has risen 218.1% over the past year as demand for its AI-capable GPUs skyrocketed.
In this piece, I've discussed why it might be wise to wait for a better entry point into the stock.
Over the past year, the tech sector's growing need for artificial intelligence capabilities has increased the demand for GPUs to power large AI models on servers. As companies rush to train and develop their generative AI models, NVDA's GPUs are likely to remain in demand. Moreover, the demand for its chips is likely to increase further as these generative AI models are deployed.
According to Deloitte, the market for specialized chips optimized for generative AI is expected to be 50 billion dollars this year. Last month, NVDA launched nearly two dozen new AI-powered tools focused on healthcare at its 2024 GTC AI conference. She also signed an agreement with Johnson & Johnson AND GE Healthcare for surgery and medical imaging. The company's expansion into healthcare AI has the potential to generate significant revenue.
NVDA also announced the next generation of AI chips and software at its developer conference. Its next-generation AI GPUs, called Blackwell, expected to ship at the end of this year. The company also launched a new software platform called NIMwhich will help improve the deployment of custom and pre-trained AI models in production environments.
Here's what could affect NVDA's performance in the coming months:
Strong finances
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 income rose 563.2% over the year-ago quarter to $14.75 billion. The company's non-GAAP net income rose 490.6% year over year to $12.84 billion. Also, its non-GAAP EPS came in at $5.16, representing a year-over-year increase of 486.4%.
For the fiscal year ended January 28, 2024, NVDA's revenue rose 125.9% year over year to $60.92 billion. Its non-GAAP operating income rose 310.8% year over year to $37.13 billion. The company's non-GAAP net income rose 286.2% over the year-ago period to $32.31 billion. Additionally, its non-GAAP EPS stood at $12.96, representing a 288% year-over-year increase.
Favorable analyst ratings
Analysts expect NVDA's fiscal 2025 EPS and revenue to grow 91.4% and 82.7% year-over-year to $24.81 billion and $111.29 billion, respectively. Its EPS and revenue for fiscal 2026 are expected to grow 21.3% and 20.6% year-over-year to $30.10 and $134.19 billion, respectively.
Similarly, analysts expect NVDA's EPS and revenue for the quarter ending April 2024 to grow 404.9% and 237.1% year-over-year to $5.50 billion and $24.25 billion, respectively.
Extended assessment
In terms of non-GAAP forward P/E, NVDA's 35.86x is 43.6% higher than the industry average of 24.97x. Its forward EV/Sales of 19.54 times is 587.2% higher than the industry average of 2.84 times. Likewise, it's 30.89x ahead EV/EBITDA 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 trailing 12-month asset turnover ratio of 1.14x is 85.3% higher than the industry average of 0.62x. Additionally, its 91.46% trailing 12-month return on equity is significantly higher than the industry average of 3.20%.
Strong historical growth
NVDA's revenue has grown at 54% CAGR over the past three years and 39.1% CAGR over the past five years. Its EBITDA has grown at 81% CAGR 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 estimates reflect uncertainty
NVDA has an overall rating of C, equal to a Neutral in our POWR Rating system. of POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal scale.
Our proprietary rating system also rates each stock based on eight different categories. Shares of NVDA are 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 on Sentiment, in sync with its favorable analyst ratings. Its expansive rating justifies a D grade for value.
NVDA has a grade of B for Quality, consistent with its high profitability.
NVDA is ranked 19th out of 90 stocks in Semiconductor chip and wireless industry. Click here to access NVDA's Growth and Stability ratings.
end
Given the likely demand for AI chips, NVDA's growth is unlikely to suffer given its dominance in advanced chips. Additionally, the company's new launches, the GB200 superchip and Blackwell architecture, would help maintain and grow demand given their higher performance capabilities.
Still, the company trades at an expensive valuation right now, and competition is heating up, with offers from Intel, Microsoft, Meta, Google, Amazon and AMD going head-to-head with NVDA's.
Given its mixed momentum, it might be wise to wait for a better entry point into the stock.
How it works NVIDIA Corporation (NVDA) Stack up against her colleagues?
NVDA has an overall POWR rating of C, equivalent to a Neutral rating. You can view these A and B rated stocks inside Semiconductor chip and wireless industry: Everspin Technologies, Inc. (MRAM), ChipMOS TECHNOLOGIES INC. (WAY), and Cirrus Logic, Inc. (CROSS). To explore more buy-rated semiconductor and wireless chip stocks, Click here.
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Shares of NVDA rose $11.11 (+1.25%) in premarket trading on Thursday. Year-to-date, NVDA has gained 79.65%, versus a 9.62% gain in the benchmark S&P 500 over the same period.
About the Author: Dipanjan Banchur
Since he was in high school, Dipanjani was interested in the scholarship. This led him to obtain a master's degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a keen interest in reading and analyzing emerging trends in financial markets.
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