Nvidia Stock: The Supercycle Is Not Over Yet, Says Top Analyst

2023 was a big year for semiconductor stocks in general, and for Nvidia (NASDAQ:NVDA) in particular – up 239% through the end of the year – and this fact hasn’t gone unnoticed at investment bank Cantor Fitzgerald. As 2024 revs up, analyst C.J. Muse waded into the fray, initiating coverage of 18 separate semiconductor stocks for 2024, and recommending that investors buy exactly half of them.

Why initiate coverage now, after 2023’s gains have already come and gone?

Muse explains: Semiconductor stocks tend to perform in cycles, in which limited supply combined with rising demand incentivizes semiconductor companies to increase production (and therefore supply). Then, oversupply weakens pricing, which convinces semiconductor companies to cut production (and therefore reduce supply), which causes prices to fall, inspiring more demand. At which point, the cycle starts all over again.

Reviewing the last seven semiconductor cycles, Muse notes that on average, the “upside” of a cycle lasts about nine quarters before oversupply initiates a downwards slide in the second half of the cycle. In the current cycle, he says demand last hit bottom in about Q2 2023, which is when the next upcycle began. This being Q1 2024, therefore, we’re currently about three quarters (or one third of the way) into the next upcycle – meaning there’s still six profitable quarters to go before business starts to go bad again.

So assuming all this is right, Muse’s advice is therefore to expect strong semiconductor profits, and strong performance for semiconductor stocks (about 14% profits on average through the end of this year) in 2024. And his advice is therefore that investors should be buying semiconductor stocks now, and only to begin thinking about cashing in profits towards the end of this year, or perhaps early 2025 (if you want to push your luck).

Given Nvidia’s strong performance, it should surprise exactly no one that one of Muse’s favorite ways to play this cycle is by buying Nvidia stock.

“NVIDIA remains the AI Compute Company” to buy (emphasis added), argues Muse. And he predicts that everybody’s favorite AI chip company will grow its earnings from a mere $1.74 per share in 2022, to report $11.12 per share in GAAP profit for 2023. Then Nvidia will grow that number 79% to $19.90 in 2024, and then grow it again by 20% to $23.88 per share in 2025.

Applying what he says is a conservative 30x valuation on those 2025 earnings, Muse sees Nvidia stock as worth at least $775 per share at present – or 30% more than the shares cost today. (To watch Muse’s track record, click here)

Muse admits that there are risks to buying Nvidia. The stock does, after all, cost a pricey 79 times trailing earnings. Then again, that actually seems the perfect valuation if the company grows earnings 79% this year. Risks that Nvidia might be hurt more than it thinks it will be by restrictions on sales of advanced chips to China remain a “concern.” The worry that AI companies might have already bought more GPUs than they actually need is another worry.

But given that Nvidia retains “a deep competitive moat” versus its competitors, given the rapid growth of demand for its AI chips, and the company’s “meaningful shift” in the rate at which it introduces new products to capitalize on demand, Muse believes this stock is still one to bet on despite the risks.

Muse’s buoyant outlook for the company is no anomaly on the Street. The stock has a Strong Buy consensus rating, based on 33 Buys and 4 Holds. The average price target is $674.68 and implies 13.5% upside from current levels. (See NVDA stock forecast)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.