Nvidia (NASDAQ:NVDA) has been propelled into the pantheon of leading global corporations by the advent of the AI revolution. The stock has surged 178% this year, and it shows no signs of losing momentum.
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While such explosive growth is undoubtedly appealing, potential investors might hesitate, wondering about the ideal entry point given the stock’s current high valuation.
In fact, investor A.J. Button has run the numbers and argues that value seekers should wait for a much lower price before buying into Nvidia.
“$83 is a reasonable price for a conservative value investor to pay for Nvidia,” the 5-star investor opined.
Though Button lauds Nvidia’s market dominance and wide competitive moat, the investor cautions that on-device AI and data center alternatives can be expected to chip away at the industry leader.
“We’re not there yet, but it is prudent to assume that these two threats to Nvidia’s moat become realities, lest we get carried away with overly rosy forecasts,” writes Button.
The investor predicts Nvidia’s revenue will surge by 111% year-over-year through the remainder of 2024, drawing on forecasts from Bank of America and TSMC’s guidance. However, he expects this growth to decelerate to 70% in 2025, and further slow to 20% in 2026. By the time we reach 2028-2030, Button anticipates growth rates will taper down from 10% to 6% as competitive pressures mount and base effects take hold.
This anticipated slowdown is the key reason for Button’s conservative price target of $83. He arrived at this figure by forecasting Nvidia’s future cash flows and discounting them back to the present, acknowledging that his target is well below current levels.
“Perhaps in a future recession or 2022-style tech sector downturn, I’ll get it,” writes the investor. “As for those buying at today’s prices: I think they’re taking a big risk…”
As a result, Button rates Nvidia shares as a Hold. (To watch Button’s track record, click here)
In contrast, Nvidia stock remains a Wall Street favorite, with 39 Buy and 3 Hold ratings, earning it a consensus Strong Buy. Its 12-month average target of $153.86 implies an upside of some 11.5% in the coming year. (See NVDA stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
