Nvidia (NASDAQ: NVDA) stock never fails to blow my mind. It’s up more than 2,500% in just five years, and around 20,000% in 10 years.
To put that in context, Nvidia had a $100bn market cap in 2019. Now, after unprecedented demand for its artificial intelligence (AI) chips, the firm has a $2.35trn market cap. Only Microsoft and Apple are larger!
Of course, trying to guess where the shares might be in one month, let alone one year, is inviting a barn-load of egg on my face. Nevertheless, let’s give it a shot.
Breathtaking growth
The first thing to note is that the phenomenal increase in value for the AI computing giant appears justified.
The rate of growth it has been experiencing is truly eye-popping. Last year, revenue grew 126% year on year to $60.9bn, while adjusted earnings per share (EPS) exploded 288% to $12.96.
I recently read that Nvidia is forecast to drive 9% of the S&P 500‘s earnings growth over the next 12 months. Mind-boggling stuff.
I never imagined such developments when I first invested in the stock a few years back.
Wall Street’s worst-kept secret
The company is due to report its Q1 earnings today (22 May). And Wall Street is expecting another blowout quarter, as evidenced by the share price rising from $795 to $953 over the past month.
Indeed, investment bank Evercore ISI says Nvidia likely beating Wall Street’s EPS expectations is the “worst-kept secret” in corporate America.
Analysts’ consensus forecasts are for $24.6bn in revenue and EPS of $5.58. That would represent almost cartoonish year-on-year growth of 242% and 412%, respectively. To beat this would be insane.
I sold my shares
While Nvidia’s hardware GPUs (graphics processing units) get all the attention, it’s the firm’s accompanying CUDA software platform that’s arguably the secret sauce.
CUDA empowers programmers to unlock the full potential of GPUs for a wide range of tasks, especially those that thrive on parallel processing, like AI.
This tight integration between hardware and software has created a powerful ecosystem and moat.
However, one concern I have is the increasing determination of many of the chipmaker’s largest customers to break its stranglehold on AI hardware. High prices and long waiting lists for Nvidia’s newest chips are causing tech firms to look elsewhere or build their own.
Meanwhile, alternatives to CUDA already exist and more are being developed.
I sold my Nvidia shares in March partly because of this uncertainty moving forward. Also, the stock had become very highly valued.
Share price projection
However, none of this is likely to upset the apple cart just yet. The latest EPS forecast I can find for FY25 (which started in January) is $23. Nearly double the year before!
Of course, an earnings miss or weak guidance would likely result in a sharp pullback in the share price.
But assuming Nvidia achieves this EPS target, and continues trading at its current 79 times earnings, then its share price would be $1,817 in one year’s time.
Even if the multiple falls to 50 times earnings (below its five-year average), the share price would be $1,150 — a 21% increase from current levels.
Based on this, it looks like Nvidia stock could be heading above $1,000, assuming no nasty surprises.
