Inspired by a 7% drop in Nvidia (NASDAQ:NVDA) shares over the past two and a half weeks, Bank of America’s Vivek Arya, a 5-star analyst rated in the top 1% of the Street’s stock pros, decided it’s time to pound the table again on Nvidia stock.
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“Volatility is not new,” for Nvidia stock, opined the analyst, and indeed, “the current selloff marks the 9th time NVDA stock has declined ~10% or more since ChatGPT was launched back in late ’22” – always to return to hit higher highs after its selloff(s).
While the reasons for investor worry this time around may be new (a resurgence of inflation, worries about the dependability of near-term Fed interest rate cuts, increased competition from Google and Intel chips, and even “AI stock fatigue”), Arya doesn’t believe that this time is going to be any different, and Nvidia will bounce right back.
Why?
Addressing the Google/Intel worries first, Arya argues that Google’s new “ARM-based server CPU called Axion” is not a competitive threat to Nvidia, which doesn’t sell CPUs to Google in any case – and so has nothing to lose from the competition (Intel and AMD, on the other hand, may have reason to worry).
For different reasons, the analyst is not concerned about Intel’s AI chips, Google’s “Tensor Processing Units” – or new AI chips being designed by Amazon or Microsoft, either. Combined, all of these supposed rivals to Nvidia’s AI hegemony make up at most 10% to 15% of the AI chip market, reassures Arya, while Nvidia itself retains a strong 80% share of the $90 billion-a-year market for AI chips – a market that will more than double in size to $200 billion by 2027.
Simply put, there’s more than enough money to go around, even with increasing competition. What’s more, Arya isn’t even worried that rivals will be able to chip away at Nvidia’s market share. The company’s new Blackwell AI chips boast “leading training and inference performance,” argues Arya, and the company’s dominant position in sales to businesses position Nvidia well not just to defend its market share – but actually to potentially gain share despite the competition.
Ultimately, Arya still values Nvidia stock at 37 times forecast 2025 profits. With Nvidia tripling its AI accelerator sales in 2023, probably doubling them in 2024, and set to grow them another 29% in 2025 – and most analysts forecasting that Nvidia will grow its profits at better than 33% annually over the next five years — that’s barely just a 1.1x forward PEG ratio. That seems — not cheap, exactly — but certainly a fair valuation for the company that’s come to dominate the AI industry today.
To this end, Arya rates NVDA shares a Buy, along with a $1,100 price target, which implies ~25% upside potential from current levels. (To watch Arya’s track record, click here)
Almost no one is arguing with that take on Wall Street. The stock’s Strong Buy consensus rating is based on 39 Buy recommendations and only 2 Holds. The forecast calls for one-year gains of ~12%, considering the average target stands at $989.53. (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.
