Where Will Nvidia Stock Be in 1 Year?

Where Will Nvidia Stock Be in 1 Year?

With a stock price increasing by a remarkable 24,000% over the last 10 years, Nvidia (NASDAQ:NVDA) was a life-changing investment for shareholders who stuck it out over the long term. But past performance is no guarantee of future results, and investors who buy its stock now are buying from the top of a mountain. What could the next 12 months be? have in a store for this booming chip maker?

First quarter results were dazzling

While Nvidia’s parabolic stock price chart may make it look like it’s in a speculative bubble, that’s not the case. The company’s fundamentals justified the rally, and its first-quarter fiscal 2025 results showed that its exceptional growth continues.

In the period ending April 28, revenue increased 262% year over year to $26 billion, driven by relentless demand for Nvidia’s high-end products. graphics processing units (GPU) — the variety used to run and train artificial intelligence (AI) models. These chips are expensive and the demand is exceeding offer, giving Nvidia incredible pricing power. The company’s gross margin reached 78.4%, an increase of 2.4 percentage points from the previous quarter and 13.8 percentage points year-over-year.

Nvidia mainly sells physical hardware with margins at the software level. Its rising gross margin suggests that the arrival of competing GPUs from peers like Advanced microsystems does not exert much pressure on its market share.

Over the next 12 months, AI chips based on Nvidia’s new Blackwell infrastructure (designed to train AI algorithms faster and with greater power efficiency) will extend the company’s technological lead and will maintain (or even increase) its already incredible pricing power.

Expect more profits and returned value shareholders

Unsurprisingly, Nvidia’s impressive revenue growth has led to equally impressive net performance. During its first fiscal quarter, net income increased 628% Year after year at $14.9 billion. And the company is increasingly serious about redistributing some of that value to shareholders: it increased its quarterly dividend by 150%, from $0.04. per share at $0.10 per share.

Granted, this gives it an insignificant yield of just 0.02%. But Nvidia also restores value thanks to share buybacks. The company authorized a $25 billion investment share buyback at the end of 2023, which (although minimal) will reduce the number of shares outstanding and increase their fundamental value relative to future earnings and cash flows.

Over the coming year, investors should expect Nvidia management to work to return more capital to shareholders, although future repurchase authorizations will be controversial, given that the share price The stock is near record highs.

Is Nvidia the next Cisco?

Even if Nvidia stock itself isn’t in a bubble, the underlying demand fueling its growth (the generative AI industry) could be. Famed tech investor Cathie Wood compares the company to Cisco — an Internet hardware provider that has grown during the Internet bubble before collapsing when the tech sector collapsed in the early 2000s.

Where Will Nvidia Stock Be in 1 Year?

Image source: Getty Images.

Although the Internet ultimately became one of the biggest tech megatrends of our time, it didn’t take off as quickly as investors initially expected. And Cisco never regained the high valuation it enjoyed at the height of the bubble. Nvidia could face similar risk if the software side of the AI ​​industry doesn’t meet expectations.

According to The Washington Post, AI chatbots still lose money on every search query due to their high training and operating costs. Although demand for AI hardware is currently high, it is unclear how long the market can remain high if the consumer software sector does not intensify dramatically over the next 12 months.

The stock still looks good, but don’t get greedy

Although it may seem hard to believe, Nvidia stock remains relatively affordable. Negotiate with forward price/earnings ratio ratio of 42, it is barely higher than the technology-intensive model NASDAQ-100It is average of 32. And it’s a small price pay for a company experiencing triple-digit growth.

That being said, investors should not get carried away. Over the next year, Nvidia components will benefit from many advantages More difficultand its valuation will become more difficult to justify on the basis of growth. The consumer AI software industry will also need to start showing more results to justify the huge amount of capital be paid in Nvidia hardware.

Although Nvidia stock still appears capable of outperforming the S&P500Investors should ensure they diversify their portfolios.

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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Advanced Micro Devices, Cisco Systems and Nvidia. The Mad Motley has a disclosure policy.

Where will Nvidia shares be in 1 year? was originally published by The Motley Fool

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