Following a tumultuous period for tech stocks in 2022, with the Nasdaq-100 Technology Sector index plummeting 40%, the industry has seen a resurgence in investor interest. The resurgence is fueled by promising opportunities in artificial intelligence (AI) and cloud computing sectors.
The “Magnificent Seven,” a group encompassing the most influential tech companies, including Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla, have garnered increased attention. These companies are actively investing in AI, a field projected to grow at a robust 37% compound annual rate until 2030.
Nvidia, the star of this ensemble, has ascended significantly over the past year. The company’s stock has surged by 245% since March, showcasing impressive growth. However, earnings per share estimates suggest that Nvidia possesses even greater potential as the AI market continues to evolve.
A Dominant Force in AI
Nvidia has established a commanding position in AI, capturing an estimated 80% to 95% market share in AI GPUs. This dominance has spurred competitors like AMD and Intel to enter the AI GPU arena. Despite their efforts, Nvidia’s lead is substantial, underlining its stronghold in the industry.
In its latest quarter (Q4 2024), Nvidia’s revenue soared by 265% year over year to $22 billion, marking a phenomenal achievement. The company’s operating income also surged by 983%, reaching almost $14 billion. This remarkable growth was primarily driven by a staggering 409% uptick in data center revenue, reflecting the increased demand for AI GPUs.
In addition to its impressive financial performance, Nvidia’s free cash flow has escalated by a remarkable 430% in the past year, surpassing AMD and Intel. This robust financial position, alongside its technological edge, indicates Nvidia is poised to maintain its market dominance in the AI realm.
Attractive Valuation Metrics
Despite its stock price surge, Nvidia’s valuation metrics present an enticing proposition. The company’s price-to-free-cash-flow and price-to-earnings ratios have declined over the past year, signaling that the stock is currently attractively priced.
These metrics, pivotal in assessing a company’s financial health, highlight Nvidia’s favorable valuation. With lower ratios indicating better value, the declining figures suggest that the present moment could be opportune for investors considering Nvidia.
Promising Earnings Outlook
As a prominent chipmaker, Nvidia occupies a vital role in the tech ecosystem. Its chips are integral to diverse devices, ranging from cloud platforms to gaming consoles and custom-built PCs. Amid a surge in AI GPU sales and a recovering PC market, Nvidia’s future appears bright.
Projections for Nvidia’s earnings-per-share anticipate a robust performance ahead. Estimates indicate that the company’s earnings could reach nearly $35 per share by fiscal 2026. Factoring in a forward price-to-earnings ratio of 36, this projection suggests a stock price of $1,252, signifying a potential 41% increase over the next two years.
Despite the possibility of not replicating last year’s meteoric growth, Nvidia’s stock is set to outperform the S&P 500’s growth since 2022. With a strong standing in AI and a resurging PC market, Nvidia remains an enticing investment opportunity.