Nvidia (NVDA), the world’s third-highest-valued stock, has faced a notable decline in market capitalization following its Q2 earnings report in late August. Despite this dip, NVDA has demonstrated resilience, rising 5% in the past week. After briefly exceeding the $3 trillion milestone earlier this year, investors are eager to understand the company’s future. My stance remains bullish on NVDA shares, fueled by its leadership in artificial intelligence (AI) and significant growth potential.
Long-Term Growth Trajectory Driven by AI
Nvidia is well-positioned for sustained growth, thanks to partnerships with major clients such as Microsoft, Alphabet, Meta, and Amazon, all ramping up their AI initiatives. Beyond these industry giants, Nvidia’s AI technology is increasingly penetrating various sectors, reinforcing my optimism. Companies worldwide are eager to harness AI’s advantages, and Nvidia continues to forge collaborations with leading enterprises.
Nvidia’s appeal lies in its comprehensive AI infrastructure, which enhances productivity—something few of its competitors can match. This unique offering positions Nvidia as a go-to provider for businesses looking to advance their AI capabilities.
A Comprehensive AI Solution with Margin Growth
Another key factor contributing to my positive outlook on Nvidia is CEO Jensen Huang’s unwavering focus on transforming the company into a fully AI-driven data center powerhouse. This strategy allows Nvidia to maintain premium pricing on its products, which in turn supports steady profit margin growth.
While some critics express concerns about the sustainability of Nvidia’s exceptional revenue growth, the numbers speak for themselves. For instance, Nvidia reported a staggering 217% increase in data center revenues for fiscal 2024. Though this growth rate is projected to moderate to around 130% in 2025, it remains impressive, particularly against a strong FY2024 baseline. As the potential of generative AI unfolds, I find analyst projections encouraging.
Robust demand for Nvidia’s chips is expected to drive future revenues, reinforcing the company’s dominant position in AI.
Impressive Quarterly Earnings Highlight Nvidia’s Strength
Nvidia delivered strong Q2 results on August 28, 2024, with adjusted earnings of $0.68 per share, surpassing the consensus estimate of $0.65. This figure marked a remarkable 152% increase from the $0.27 per share reported in Fiscal Q2-2023. The company achieved a 122% year-over-year revenue growth, generating $30.04 billion for the quarter, significantly exceeding analyst expectations. Notably, data center revenues grew 154% year-over-year, reaching $26.3 billion, and the adjusted gross margin expanded to 75.1% from 70.1% the previous year.
Despite these impressive results, some investors anticipated even higher figures, leading to a slight decline in the stock post-earnings. Shares continued to decrease until they reached a low just above $100 on September 6.
Insider Selling and Market Reactions
Concerns regarding insider selling contributed to downward pressure on NVDA shares in recent months. CEO Jensen Huang sold a substantial amount of NVDA stock as part of a predetermined trading plan established in March, which allows him to sell up to six million shares by the end of Q1 2025. Despite selling over $700 million worth of stock, Huang remains the largest individual shareholder, controlling approximately 3.5% of the company through various trusts and partnerships.
Valuation Perspective: Not Overpriced
While some investors express hesitation due to Nvidia’s rapid stock appreciation and concerns over slowing growth, I argue that the current valuation is justified. NVDA trades at a forward P/E ratio of about 43x based on FY2025 earnings expectations, which is lower than its closest competitor, Advanced Micro Devices, at 46.8x. Additionally, NVDA’s current valuation reflects a 10% discount to its five-year average forward P/E of 47.3x.
Given Nvidia’s consistent outperformance and robust growth prospects, I believe its valuation presents an attractive buying opportunity, particularly as AI continues to expand.
Analyst Consensus: Strong Buy
With 39 Buy ratings and three Hold ratings from analysts in the last three months, Nvidia’s consensus rating is a Strong Buy. The average target price of $152.44 implies a potential upside of about 26% over the next year.
Conclusion: A Strong Long-Term Investment
Despite recent market fluctuations, NVDA shares have nearly tripled in the past year, outperforming the Nasdaq 100’s 37% increase. The post-earnings sell-off appears to be largely driven by profit-taking, and following a dip near $100, the stock seems to be in recovery.
Although short-term economic and political uncertainties may keep the stock range-bound, I view any price dips as solid buying opportunities. Given the substantial potential of AI, I consider Nvidia a strong long-term investment.
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