- Nvidia Corporation’s stock is positioned for mid-teens returns due to strong AI chip demand, reasonable valuation, and robust earnings growth.
- Recent price drop offers a buying opportunity; Nvidia’s P/E ratio is now in line with Big Tech peers but with higher growth prospects.
- Blackwell chips, launching Q4, promise significant performance gains, driving strong demand from Big Tech aiming for AI advancements.
- Risks include competition, potential custom chip development by cloud players, and regulatory scrutiny, but Nvidia’s product superiority supports its market position.
Introduction
Nvidia Corporation (NASDAQ:NVDA) is a stock that needs no introduction, as it has seemed to singularly capture the world’s attention as the darling of AI. Since November 2022 and the release of ChatGPT, Nvidia’s stock price has appreciated a whopping c700%. Unlike some other hyped AI names, Nvidia’s earnings have actually roared ahead of its stock price as demand for the firm’s GPUs has proved insatiable.
Following a shift in sentiment in markets and a negative response to the firm’s recent earnings, shares are now trading at the most attractive level relative to growth in a decade. Investors need to be realistic about what time of return they might achieve, given the stock has grown into a $2.5 trillion behemoth. Expecting a repeat of the 700% since over the last two years is not realistic, but based on my own DCF analysis, I believe the stock is set up to deliver mid-teens returns for investors.
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