Some investors are worried that Nvidia’s (NVDA) high stock price means that it’s in a bubble. However, as Bloomberg points out, its strong revenue growth continues to attract buyers. Even though the chipmaker’s latest earnings didn’t blow past expectations, they still grew faster than the rest of the tech world. In fact, Nvidia’s revenue is expected to grow by at least 42% over the next year, which is much higher than the Nasdaq 100’s 10% average. And while the stock price is high, it’s actually getting cheaper by valuation measures, trading at under 33 times forward earnings, down from 35 times just three weeks ago.
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Indeed, compared to other fast-growing tech companies, Nvidia’s stock doesn’t look overpriced. For example, Palantir Technologies (PLTR), which is up over 400% in the past year, trades at about 200 times forward earnings, even though its revenue growth is similar to Nvidia’s. If Nvidia were valued the same way, its market cap would be around $26 trillion. Furthermore, major tech firms like Microsoft (MSFT) and Apple (AAPL) have price-to-earnings ratios close to Nvidia’s, despite slower growth rates of 14% and 6%, respectively. Therefore, Nvidia’s valuation, given its growth rate, is not extreme.
Nevertheless, some caution is still warranted because the semiconductor industry has a history of boom-and-bust cycles, with big crashes in the past. But Nvidia’s outlook remains strong, especially in AI. In addition, analysts note that even in 2023, when its valuation peaked, Nvidia turned out to be a bargain because it kept beating expectations. As a result, with tech giants like Microsoft and Google (GOOGL) continuing to pour money into AI, while demand for Nvidia’s chips is still higher than supply, many believe that the stock deserves its premium.
What Is a Good Price for NVDA?
Turning to Wall Street, analysts have a Strong Buy consensus rating on NVDA stock based on 34 Buys, three Holds, and one Sell assigned in the past three months, as indicated by the graphic below. Furthermore, the average NVDA price target of $211.97 per share implies 21.3% upside potential.
