Nvidia‘s (NASDAQ: NVDA) The stock has risen a whopping 500% over the past three years. There is no doubt that much of this recent rally has been fueled by the company’s position as a key beneficiary and catalyst for ongoing development. artificial intelligence (AI) wave.
Nvidia offers a comprehensive AI platform, including cutting-edge AI-optimized hardware chips, a comprehensive software ecosystem, high-speed networking solutions, and servers to enable customers to create “AI factories,” or the essential infrastructure for AI-driven output (text, images, audio, video). The company’s accelerated product release rate, from two to one year, also helps it maintain its technological superiority over the competition.
Additionally, in addition to growing demand from large hyperscale companies, large enterprises and AI startups, Nvidia’s AI-optimized hardware and software solutions are now increasingly being used in new areas such as sovereign AI (governments developing national AI capabilities), the automotive vertical and robotics.
The AI frenzy propelled Nvidia’s stock to an all-time high of more than $1,200 in early June. Its recently executed 10-for-1 stock split made its shares much more accessible to retail investors.
With Nvidia stock now sitting around $124 as of this writing, long-term investors might want to know if the stock can reach levels above $1,000 again. Let’s analyze the company’s fundamentals and valuations to find answers.
Intensifying competition and supply challenges
Nvidia’s technological superiority in developing AI-optimized hardware and software has allowed the company to capture a whopping 90% share of the global AI chip market. However, the company’s strong position could be challenged in the long run. Although currently far behind Nvidia, competitors Advanced microsystems And Intel are working hard to capture a share of the AI market.
AMD’s MI300 family of data center chips has seen strong demand, while the company is also preparing to launch AI chip families such as the MI325 and MI350 accelerators in the coming months, based on advanced architectures. AMD expects these chips to demonstrate faster performance, improved memory capacity, and more powerful computing capabilities for AI workloads.
Intel is also aggressively focusing on the AI PC opportunity and hopes to launch Lunar Lake laptop processors by September 2024. Lunar Lake chips are expected to be superior in terms of performance, efficiency and graphics processing compared to their Meteor Lake predecessors. Additionally, Intel also introduced Gaudi 3 AI accelerators, providing superior cost-performance benefits for training and inferencing AI models.
Nvidia also faces the risk of its customers, such as cloud players and tech giants, becoming competitors as they have accelerated in-house development of AI-optimized chips and solutions. This risk cannot be ignored, as large cloud players account for approximately 45% of the company’s data center revenue.
Many other challenges
While demand for Nvidia’s chips and AI solutions has increased significantly, the company continues to face supply constraints related to acquiring manufacturing, testing and packaging capabilities from Semiconductor manufacturing in Taiwan and other suppliers. Subsequently, the company expects demand for its new H200 chips and next-generation Blackwell chips to far exceed supply through 2025. This headwind may affect the company’s growth prospects in coming years.
Nvidia has also accelerated the release rate (of major products or features) from once every two years to once a year. Continuously innovating and adapting hardware and software is the need of the hour in the face of increasing complexity and rapid evolution of AI models and workloads.
However, this also exposes Nvidia to significant execution risks and the risk that customers will delay their purchases to access the most advanced technologies. Nvidia’s rapid pace of innovation can lead to early product obsolescence of its older offerings and an increased risk of self-cannibalization.
Value estimates
Nvidia has consistently reported impressive financial numbers in recent quarters. In the first quarter of fiscal 2025 (which ended April 28), revenue increased nearly 262% year over year to $26 billion, while net income jumped 628% year over year to $14.9 billion.
Analysts expect Nvidia’s fiscal 2025 sales to grow 97% year over year to $120 billion. Although the revenue growth rate is expected to slow over the next decade, analysts expect the company’s sales to more than triple to $380.9 billion by 2034.
Nvidia is currently trading at a price-to-sales (P/S) ratio of 38.6x. Assuming this multiple returns to its 10-year average of 22.27x (a conservative estimate), we can expect Nvidia’s market cap to reach approximately $8.5 trillion by 2034. Although the market capitalization seems huge, it is only 2.7 times the company’s current market capitalization of $3.1 trillion. This implies that the stock can reach over $340 by 2034 (assuming no significant stock buybacks or stock splits).
Assuming Nvidia’s price-to-earnings ratio remains at its current level of 38.6x (a very aggressive estimate), the company’s market cap will be around $14.7 trillion, or 4.7 times its current market cap. Still, the company’s stock price is expected to reach nearly $600 by the end of 2034.
Therefore, based on current estimates, the chances of Nvidia’s stock price surpassing $1,000 in the next decade seem slim. However, these projections could change if Nvidia makes even more dramatic advances in AI technologies in the coming years.
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Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy.
Can Nvidia stock cross $1,000 again after stock split? was originally published by The Motley Fool
