Nvidia Corporation, the artificial intelligence and graphics chip heavyweight, has seen its stock price skyrocket over the past couple of years. With a current market valuation hovering around $1.8 trillion, Nvidia is nipping at the heels of stalwarts like Alphabet and Meta Platforms to become one of the largest companies in the world by market cap.
For a semiconductor manufacturer operating in an infamously cyclical industry, this meteoric rise seems almost unfathomable. However, one analyst argues that Nvidia’s valuation may not be as outlandish as it appears on the surface.
Upgrading Price Targets on Immense Growth Potential
This week, Susquehanna analyst Christopher Rolland boosted his Nvidia price target to $850 per share, a 36% increase from his previous level. This upgrade came just ahead of Nvidia’s upcoming earnings report for fiscal year 2024 on February 21st.
The upgrade is based on Rolland’s exceedingly bullish forecasts for Nvidia’s performance over the coming year. Consensus estimates have Nvidia quintupling its earnings from the year-ago quarter to $4.55 per share for Q4 FY2024. Revenues are expected to triple to $20.3 billion over the same period.
However, Susquehanna believes Nvidia will sail past even these optimistic projections. Specifically, Rolland predicts the AI juggernaut will beat revenue estimates by at least $1.5 billion this quarter. Furthermore, he sees Nvidia generating a whopping $99 billion in total sales for fiscal 2025, more than double last year’s revenue.
Valuing Nvidia’s Meteoric Growth Trajectory
Naturally, this raises the question – even with such immense growth on the horizon, can it reasonably support a $1.8 trillion valuation? According to Rolland’s analysis, the answer is yes.
Granted, Nvidia currently trades at a steep 95x earnings multiple. However, by meeting Susquehanna’s fiscal 2025 revenue target, Nvidia would be growing sales at a 50%+ annual clip. With gross margins expected to expand as well on higher AI chip pricing, earnings could outpace revenue growth.
In fact, if Susquehanna’s projections materialize, Nvidia’s PEG ratio – which measures valuation relative to expected growth – would dip below 1.0 by next year. This would signal that even at its towering height, Nvidia stock may have more room to run as a potential value play.
An Accelerating AI Arms Race
What is fueling this explosive growth potential that could reasonably support Nvidia’s sky-high valuation? In a word: AI. Nvidia finds itself at the epicenter of a rapidly accelerating arms race in artificial intelligence computing between heavyweights like Google, Microsoft, Meta and AWS.
These tech titans are pouring tens of billions into developing next-generation AI models that can drive innovations from autonomous vehicles to disruptive medical discoveries. However, training these complex models requires data center chips with immense processing power.
Enter Nvidia, whose cutting-edge graphics and AI accelerators like the A100 and incoming H100 are unmatched in performance. As demand for AI computing ramps exponentially in the coming years, Nvidia looks poised to dominate this high-growth market.
Risks Remain
Of course, risks abound, even for a company of Nvidia’s pedigree. The demand environment could shift unexpectedly. New competitors could emerge. Macro pressures from high inflation and rising interest rates could dampen enterprise spending.
Nonetheless, Nvidia finds itself in an enviable position at the confluence of several extremely powerful trends in technology. AI is transforming entire industries, and Nvidia provides the most advanced AI computing platform bar none. Its first-mover status has produced an incredible ecosystem effect, with developers racing to leverage Nvidia’s CUDA architecture.
So while uncertainties persist, Nvidia’s leadership position at the epicenter of the AI revolution lends credence to Susquehanna’s ultra-bullish forecast. Only time will tell, but Nvidia’s sky-high valuation may yet prove to be justified in hindsight.
