Nvidia (NVDA) has been among the most incredible recent growth stories. This chip maker has seen its value increase more than 10-fold over the past five years alone. At least it did, before the recent precipitous drop of more than 30% from its peak.
At Nvidia’s peak, the company was valued at nearly $900 billion, and was inching toward the $1-trillion valuation mark. This valuation has been reserved for only the highest-growth mega-cap stocks in the world.
Unfortunately, a series of macro headwinds have taken the wind out of the proverbial sails of growth stocks. The past few months have been rough, with investors pricing in higher interest rates and an inflation-driven future into stock prices.
Can Nvidia once again return to its former capital appreciation glory? I think so, at least over the medium term. I remain bullish on NVDA stock, and here’s why.
Nvidia’s Outlook Remains Strong
From a fundamentals standpoint, there’s a lot to like about how Nvidia is valued, particularly after its 30% drop from its peak. This company currently trades at a forward price-earnings multiple of 43.
Additionally, the company’s forward growth estimates still come in at around 34%. That means that this stock is just a hair above a price-earnings-to-growth (PEG) ratio of 3.2. For stocks like Nvidia, that’s cheap.
There are some reasons why investors may consider this valuation a very decent one right now. It’s not necessarily a view based on the company’s historical performance, which has been excellent. Rather, it’s what Nvidia has on its plate in terms of future growth prospects.
Many long-term investors in Nvidia see growth coming from three main markets. There’s the company’s base semiconductor market, which is expected to grow at a reasonable pace of around 9% per year.
Then there’s the gaming market and AI market, of which Nvidia is providing an increasing number of chips. These market segments are much faster-growing, with double-digit expected compound annual growth rates (CAGR) over the medium term.
In addition to these sectors, Nvidia’s chips power much of the crypto mining sector. Like it or not, this remains a hot sector, and one which is seeing a lot of investment. Over time, Nvidia’s ability to capture high-end market share in computing is likely to create a moat that will be hard for other companies to penetrate.
Relative to its peers, there’s a lot to like about how Nvidia is positioned in terms of future growth. Relative to the company’s valuation, NVDA stock provides an attractive growth profile and an easy-to-understand investment thesis right now.
Solid Fourth Quarter Earnings
Okay, so that’s looking forward. Let’s look back on the company’s recent earnings.
Nvidia’s fourth-quarter earnings were, in a word, strong.
The company reported earnings per share of $1.32, beating out consensus estimates of $1.08 per share. Further, the company’s revenue of $7.64 billion came in much higher than expected, representing year-over-year growth of 69% and 53%, respectively.
Any company that’s able to grow both its top and bottom line by these margins ought to be considered. What’s more, Nvidia managed to grow its bottom line faster than its revenue. This implies margin expansion, something long-term bulls must like.
Finally, there’s the forward-looking projections that should be considered. The market is pricing in a forward growth rate of only 34%. Considering
Nvidia essentially doubled this growth rate, at least on its bottom line, there’s a lot to like about the potential for stock price upgrades following future earnings calls. That is, should the company be able to repeat these results moving forward.
Wall Street’s Take
As per TipRanks’ analyst rating consensus, NVDA is a Strong Buy. Out of 22 analyst ratings, there are 19 Buy recommendations and three Hold recommendations.
The average Nvidia price target $362.22. Analyst price targets range from a high of $400 per share to a low of $250 per share.
Bottom Line
Whether or not Nvidia will hit a $1-trillion valuation this year remains to be seen. Macro headwinds remain strong right now, and this argument is one that’s certainly on the fringes of what most investors expect.
However, over a medium-term time frame (say, two to five years), such an outlook is possible, if not probable. Should Nvidia continue to grow as it has been, and beat future growth expectations, this is a stock that certainly has the ability to run to a $1-trillion valuation. For context, Nvidia stock currently sits at a valuation of around $600 billion at the time of writing.
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