Nvidia (NASDAQ:NVDA) has been among the best-performing stocks over the past year. At the time of writing, NVDA stock has nearly tripled over this time frame, and that includes a 15% drop from its all-time high reported earlier this year.
As most investors are aware, hype and excitement around the AI revolution has driven this move. As one of the leading players in producing high-performance chips for industries tied to the AI revolution, Nvidia is widely viewed as a so-called “picks and shovels” play on the sector.
There indisputable growth upside over the long-term for Nvidia, given how it’s currently positioned relative to its peers.
That said, the question is how much upside Nvidia might have from here? After all, this incredible run up in NVDA stock has put the company’s valuation north of $1 trillion.
That mega-cap valuation that portends poorly for growth, as it simply becomes mathematically more difficult to continue to grow at a high rate, the larger a company gets.
Let’s dive in.
Recent NVDA News
Nvidia recently introduced the GH200 Grace Hopper super chip, a more potent AI chip for generative AI. CEO Jensen Huang highlighted the need for specialized accelerated computing for increasing AI demand.
In addition, Nvidia unveiled a supercomputer, software, and services for generative AI, capable of creating content and even writing code.
Nvidia exceeded expectations in its recent quarter, driven by record data-center sales and rising AI demand. CEO Huang emphasized their leadership in AI chips, vital for technologies like the ChatGPT chatbot.
Experts believe Nvidia may see a further 15% or more gain this year because of strong investor support for the AI revolution. With a nearly 200% increase this year, Nvidia’s impressive Q2 revenue projection drove its stock higher.
The demand for its AI accelerator chips, fueling generative AI apps like ChatGPT and IoT, is a key factor. Analysts, like Matt Tuttle of Tuttle Capital Management, anticipate Nvidia to exceed $450 and continue rising as it dominates the AI semiconductor market, making it a top choice for AI investment.
The swift advancement of similar technology, encompassing realistic visuals and audio, has left even AI experts uncertain about its potential and risks.
Despite facing challenges in 2022, including a demand slowdown and a failed attempt to acquire Arm, Nvidia’s share price surged beyond its previous peak to $385.84 per share, surpassing the 2021 high of $333.76.
Nvidia Fundamentals
Nvidia’s shares dipped 1.7% after unveiling its AI chip, followed by a 5% drop amidst a market sell-off. The stock fell below key moving averages, potentially signaling a buying opportunity or a warning for long-term holders to consider selling.
Nvidia might establish a new base, with shares close to the recent high, after joining IBD Leaderboard and surging on strong earnings. This year, the stock surged over 190%, recovering from a 2022 decline.
In May, Nvidia reported strong earnings, surpassing expectations with $1.09 EPS and $7.19 billion in sales. Data-center sales increased 14%, while gaming-chip sales declined 38%.
During the first quarter, data-center sales grew by 14% to reach $4.28 billion, while gaming-chip sales declined by 38% to $2.24 billion. Analysts project a 139% EPS rebound in fiscal 2024 with a 62% sales increase. Nvidia’s next earnings report is anticipated on Aug. 23.
What Now
Analysts predict 21% yearly earnings growth for the next five years, possibly higher due to discussed factors. If earnings rise by 25% annually from fiscal 2027 to 2033, Nvidia’s earnings could multiply by around 18 times in a decade from the current $3.34 per share. This would outpace the past decade’s growth.
Despite Nvidia’s high current price-to-earnings ratio of 205, its anticipated earnings growth and strong potential in AI, automotive, and data centers remain attractive for investors.
The company’s forward price-earnings ratio of 50-times indicates substantial future earnings growth. Nvidia is shaping the AI-powered future and, with a strong product pipeline and growth trajectory, is appealing for long-term investors.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.