Can Nvidia Stock Price Reach $500? Yes, It’s All About AI
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Summary:
- Recent metrics disclosed by Nvidia Corporation indicate that the company’s growth potential associated with AI is much more substantial than expected.
- A $500 stock price is within reach for Nvidia, considering that the implied PEG multiple of 1.28 times isn’t excessive.
- I stick with my Buy rating for Nvidia Corporation, as a $500 target price is equivalent to a decent upside of +27%.
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Elevator Pitch
My Buy investment rating for Nvidia Corporation (NASDAQ:NVDA) shares stays intact.
In my prior update for NVDA, written on April 6, 2023, I noted my expectations of “Nvidia’s shares rising above $300” taking into account the fact that it “is well-positioned to leverage on generative AI growth opportunities.” Nvidia Corporation’s stock price has since risen by +46% (source: Seeking Alpha price data) to close at $394.82 as of June 12, 2023.
I determine that there is a very good chance of NVDA’s shares going up further to $500 with the current article, which supports my Buy rating for the stock. Nvidia Corporation has yet to fully exploit AI-related growth opportunities, and the implied price/earnings to growth or PEG multiple for NVDA at the $500 price level is still pretty reasonable.
Is Nvidia Stock Expected To Go Up Further?
In my view, Nvidia Corporation’s shares still have legs to run, notwithstanding its +176% stock price gain in 2023 year-to-date.
NVDA’s disclosures at the company’s recent investor events imply that the company has only begun to scratch the surface of the AI growth opportunity.
In the subsequent section, I highlight key takeaways from Nvidia’s participation in Bank of America’s (BAC) investor event, and the company’s most recent quarterly results call.
NVDA Stock Key Metrics
In early June, both NVDA’s CFO Colette Kress and Gaming SVP Jeff Fisher took part in Bank of America’s 2023 Global Technology Conference. Insights from CFO Colette Kress’ meeting with BAC’s institutional clients are drawn from the bank’s June 7, 2023, research report (not publicly available) titled “Tech Conf. Takeaways: Solid Meetings With CFO”, while Gaming SVP Jeff Fisher’s comments are sourced from Seeking Alpha’s event transcript.
There are three key metrics revealed at BAC’s 2023 Global Technology Conference on June 6, 2023 which are worthy of note for investors.
The first metric is Nvidia Corporation’s market share for AI training and AI inference. As per BAC’s June 7, 2023, research report, NVDA currently boasts a market share in excess of 90% for “AI applications (which) are dominated by training today,” but Nvidia’s share of the AI inference market is estimated to be a “mid-single digit” percentage. With my earlier April 6, 2023 write-up, I also cited Morgan Stanley’s (MS) forecast of a “10-fold” increase in NVDA’s “annual AI inference revenue” in “the next five years.” In other words, it will be fair to assume that Nvidia is in the early innings of fully capitalizing on the rise of generative AI.
The second metric is NVDA’s data center client mix. CSPs (Cloud Service Providers), enterprises and consumer internet companies account for approximately 40%, 30%, and 30% of the company’s data center business, respectively according to Bank of America’s June 7 report. This means that it isn’t a single dominant client group driving up data center demand. Instead, all of Nvidia’s various client groups see the potential of generative AI, which implies that AI-related demand for NVDA’s data center business is likely sustainable.
The third metric is Nvidia’s share of the gaming market. At BAC’s Tech Conference, NVDA’s SVP of Gaming Jeff Fisher mentioned about “new things like AI and ACE (Avatar Cloud Engine)” when asked a question about whether the company can defend its “strong 70%-80% market share among enthusiast gamers.” Earlier on May 28, 2023, NVDA disclosed that it had introduced “ACE for Games, a custom AI model foundry service that transforms games by bringing intelligence to non-playable characters (NPCs).” This is an example of how AI could reinforce Nvidia’s competitive edge for the gaming business and extend its growth runway.
Separately, Nvidia Corporation also previously highlighted a key metric at its Q1 FY 2024 (YE January 31) earnings call on May 24, 2023. NVDA stressed at the company’s most recent quarter results briefing that “the world’s $1 trillion data center is nearly populated entirely by CPUs today” and “basically unaccelerated.”
Looking ahead, I have emphasized the shift in AI “workloads from CPUs to GPUs” with my April 6 article, which will benefit Nvidia Corporation. NVDA also noted at its first quarter results call that it expects future data center capital expenditures “would lean very heavily into generative AI, into accelerated computing infrastructure” with a substantial increase in “GPUs that would be used.”
In summary, Nvidia’s stock still has upside potential, as the company has a very long growth runway in the age of generative AI. Having determined that NVDA’s share price can go up higher, I discuss how high Nvidia’s stock can specifically reach in the next two sections
What Are Current Analyst Price Targets?
The mean sell-side target price for Nvidia Corporation is $444.49 now, which implies a +12.6% upside from NVDA’s last done share price of $394.82 as of June 12, 2023. But the most bullish analyst on the Street currently thinks that Nvidia’s share price can go up to as high as $710.
What Is The Long-Term Outlook?
Considering Nvidia’s recently disclosed metrics highlighted above, the AI growth potential for NVDA appears to be much larger than what the market has initially anticipated. This is reflected in the sell-side’s financial outlook for the company in the long run.
As per S&P Capital IQ data, the current Wall Street analysts’ consensus FY 2024-2028 normalized earnings per share or EPS CAGR projection is an impressive +43.5%. As a reference, I have cited a relatively more modest sell-side’s forward four-year bottom line CAGR estimate of +32.8% for NVDA in my April 6 write-up. It is clear that analysts are now much more bullish on Nvidia Corporation’s long term growth prospects.
Can Nvidia Reach $500?
I think that NVDA’s shares can reach the $500 mark.
Nvidia Corporation will trade at an estimated PEG multiple of 1.28 times, assuming that its stock price goes up to $500. NVDA’s PEG metric is calculated by dividing its consensus forward next twelve months’ P/E (based on $500 share price) of 55.7 times by its normalized EPS CAGR forecast of +43.5%.
Considering that high-growth companies can command a PEG ratio of 1.5 times or even higher, NVDA’s PEG metric of 1.28 times as implied by a $500 price target doesn’t seem too demanding.
Bottom Line
Based on my analysis, Nvidia’s stock has room to rise further thanks to AI-related growth opportunities, and it won’t be unreasonable for the company’s share price to hit the $500 mark. Therefore, I don’t see any reasons to change my bullish view and Buy rating for Nvidia Corporation stock.
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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