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Riding the Wave of AI - NVIDIA's 2024 and Beyond Stock Analysis

NVIDIA (NVDA) has ridden the AI wave like no other company, given the robust demand for its high-performance GPUs. In this piece, I analyze NVDA’s prospects for 2024 and beyond. Keep reading...

Since last year, NVIDIA Corporation (NVDA) has been the subject of much discussion. The company's fortunes have been linked to the massive AI boom that’s predicted to transform the world. NVDA's share price has soared 218.1% over the past year as demand for its AI-capable GPUs skyrocketed.

In this piece, I have discussed why it could be wise to wait for a better entry point in the stock.

Over the past year, the tech sector's growing need for artificial intelligence capabilities has boosted the demand for GPUs to power large AI models in servers. As companies rush to train and develop their own generative AI models, NVDA’s GPUs are likely to remain in demand. Moreover, the demand for its chips is likely to grow further as these generative AI models are deployed.

According to Deloitte, the market for specialized chips optimized for generative AI is expected to be $50 billion this year. Last month, NVDA launched nearly two dozen new AI-powered, healthcare-focused tools at its 2024 GTC AI conference. It also signed deals with Johnson & Johnson and GE Healthcare for surgery and medical imaging. The company's expansion into healthcare AI has the potential to generate significant revenues.

NVDA also announced its new generation of AI chips and software at its developer conference. Its new generation AI GPUs, named Blackwell, are expected to ship later this year. The company also launched a new software platform called NIM, which will help streamline the deployment of custom and pre-trained AI models into production environments.

Here’s what could influence NVDA’s performance in the upcoming months:

Robust Financials

NVDA’s revenue for the fourth quarter ended January 28, 2024, rose 265.3% year-over-year to $22.10 billion. Its non-GAAP operating income increased 563.2% over the prior-year quarter to $14.75 billion. The company’s non-GAAP net income rose 490.6% year-over-year to $12.84 billion. Also, its non-GAAP EPS came in at $5.16, representing an increase of 486.4% year-over-year.

For the fiscal year ended January 28, 2024, NVDA’s revenue increased 125.9% year-over-year to $60.92 billion. Its non-GAAP operating income rose 310.8% year-over-year to $37.13 billion. The company’s non-GAAP net income increased 286.2% over the prior-year period to $32.31 billion. In addition, its non-GAAP EPS stood at $12.96, representing an increase of 288% year-over-year.

Favorable Analyst Estimates

Analysts expect NVDA’s EPS and revenue for fiscal 2025 to increase 91.4% and 82.7% year-over-year to $24.81 and $111.29 billion, respectively. Its EPS and revenue for fiscal 2026 are expected to increase 21.3% and 20.6% year-over-year to $30.10 and $134.19 billion, respectively.

Similarly, analysts expect NVDA’s EPS and revenue for the quarter ending April 2024 to increase 404.9% and 237.1% year-over-year to $5.50 and $24.25 billion, respectively.

Stretched Valuation

In terms of forward non-GAAP P/E, NVDA’s 35.86x is 43.6% higher than the 24.97x industry average. Its 19.54x forward EV/Sales is 587.2% higher than the 2.84x industry average. Likewise, its 30.89x forward EV/EBITDA is 108.6% higher than the 14.81x industry average.

High Profitability

In terms of the trailing-12-month EBITDA margin, NVDA’s 56.60% is 504.6% higher than the 9.36% industry average. Likewise, its 1.14x trailing-12-month asset turnover ratio is 85.3% higher than the industry average of 0.62x. Furthermore, its 91.46% trailing-12-month Return on Common Equity is significantly higher than the industry average of 3.20%.

Solid Historical Growth

NVDA’s revenue has grown at a 54% CAGR over the past three years and a 39.1% CAGR over the past five years. Its EBITDA has grown at an 81% CAGR over the past three years. Its net income and levered FCF have grown at 90.1% and 74.6% CAGRs over the past three years.

POWR Ratings Reflect Uncertainty

NVDA has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. NVDA’s stock is trading below its 10-day moving average but above its 200-day moving average, justifying its C grade for Momentum.

It has an A grade for Sentiment, in sync with its favorable analyst estimates. Its stretched valuation justifies its D grade for Value.

NVDA has a B grade for Quality, consistent with its high profitability.

NVDA is ranked #19 out of 90 stocks in the Semiconductor & Wireless Chip industry. Click here to access NVDA’s Growth and Stability ratings.

Bottom Line

Given the potential demand for AI chips, NVDA’s growth is unlikely to suffer given its dominance in advanced chips. Moreover, the company’s new launches, the GB200 superchip and Blackwell architecture, would help sustain and grow demand given their higher performance capabilities.

However, the company trades at an expensive valuation currently and competition is heating up, with Intel, Microsoft, Meta, Google, Amazon, and AMD’s offerings going head-to-head with NVDA’s.

Given its mixed momentum, it could be wise to wait for a better entry point in the stock.

How Does NVIDIA Corporation (NVDA) Stack Up Against Its Peers?

NVDA has an overall POWR Rating of C, equating to a Neutral rating. You may check out these A and B-rated stocks within the Semiconductor & Wireless Chip industry: Everspin Technologies, Inc. (MRAM), ChipMOS TECHNOLOGIES INC. (IMOS), and Cirrus Logic, Inc. (CRUS). For exploring more Buy-rated Semiconductor & Wireless Chip stocks, click here.

What To Do Next?

Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:

10 Stocks to SELL NOW! >

NVDA shares rose $11.11 (+1.25%) in premarket trading Thursday. Year-to-date, NVDA has gained 79.65%, versus a 9.62% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.


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