In a realm dominated by tech giants, where trillion-dollar valuations have become a hallmark of success, Nvidia emerges as a relentless contender, poised to become the newest member of the illustrious $1 trillion club. As the unrivalled frontrunner in advanced semiconductor production, explicitly focusing on fuelling the rise of groundbreaking technologies in artificial intelligence, Nvidia stands at the forefront of a rapidly evolving digital landscape.
With the recent release of their astounding fiscal 2024 first-quarter earnings results, which propelled the company’s stock to a staggering 24% surge, Nvidia’s market capitalisation now looms tantalisingly close to the momentous milestone of $1 trillion. In the race for technological dominance, Apple, Microsoft, Alphabet, and Amazon have cemented their positions in the all-exclusive trillion-dollar club. Still, Nvidia, with a market capitalisation currently exceeding $950 billion, is chipping away at that milestone.
Evaluating Nvidia’s Share Price Alongside Industry Giants
Concerning the price chart below, it is clear that Advanced Micro Devices (NASDAQ: AMD) has led the pack, boasting a stellar 770% cumulative return (orange line) over the most recent five-year period. Nvidia (NASDAQ: NVDA) has also impressed shareholders with an impressive cumulative return exceeding 500% (green line) over the same five-year period. While Broadcom Inc. (NASDAQ: AVGO), Taiwan Semiconductor Manufacturing Company (NYSE: TSM), and Qualcomm Inc. (NASDAQ: QCOM) have returned over 200%, 150% and 90%, respectively (black, purple, yellow lines), Intel (NASDAQ: INTC), has lagged behind industry peers, returning a measly -48% (red line) to shareholders over the most recent five-year period.
Over the last twelve months, Nvidia’s share price has surged by an eye-watering 115% (green line) as the semiconductor giant benefits from the hype around artificial intelligence. Concerning the price chart below, it is evident that Nvidia’s one-year share price performance is second to none, with Broadcom Inc, Advanced Micro Devices and Taiwan Semiconductor Manufacturing Company yielding close to 40%, 25% and 7%, respectively (black, orange, purple lines), over the same one-year period. Qualcomm Inc. and Intel have yielded double-digit negative returns to shareholders over the last twelve months (yellow and red lines).
Year-to-date, Nvidia has shattered market expectations, returning around 180% to shareholders (green line) as the company enjoys a significant market share in the chip-manufacturing industry. While Nvidia’s year-to-date performance is mind-boggling, to say the least, Advanced Micro Devices has impressed market players with a near-100% return year-to-date (orange line). With artificial intelligence making waves in the marketplace in 2023, it is no surprise that Nvidia’s share price has more than doubled since the beginning of the year, given the company’s overwhelming market share within the graphics processing units (GPUs) industry. With Nvidia’s cutting-edge chips having played a pivotal role in training the world-renowned large language model, ChatGPT, positive market sentiment has pushed the superconductor’s share price to unprecedented heights in 2023.
Nvidia’s mind-boggling year-to-date performance can easily be seen compared to the Nasdaq 100 and the S&P 500. Year-to-date, the Nasdaq 100 index has returned over 30% (blue line), while the S&P 500 has clocked in close to 10% (orange line). Despite the S&P 500 yielding a positive return year-to-date, it is important to note that its performance has been predominantly driven by a handful of stocks, specifically those poised to benefit from the ever-evolving craze around artificial intelligence.
Fundamental Analysis
Nvidia (NASDAQ: NVDA) has emerged as a global powerhouse in the realm of technological innovation, and its share price has been setting the market ablaze, with a staggering surge of nearly 200% year-to-date. The giant semiconductor manufacturer has taken the investment world by storm, fuelled by the undeniable allure of artificial intelligence. As the global fascination with artificial intelligence continues to reach unprecedented heights, Nvidia stands tall as the vanguard of this groundbreaking revolution. Its unrivalled expertise in graphics processing units (GPUs) has propelled the company to the forefront of AI research, making it an indisputable leader in this transformative space.
For the first quarter of their 2024 fiscal year, Nvidia reported a quarterly revenue figure of $7.19 billion, a 19% increase from the prior quarter but 13% down year-over-year. Nvidia’s share price has surged to historic levels in 2023 as it enjoys surging demand for its advanced semiconductors. Their expertise lies in creating highly advanced chips engineered to drive technological advancements specifically within the artificial intelligence realm, and this competitive edge has paved the way for Nvidia’s near 200% return year-to-date. Despite quarterly revenue coming in 13% lower compared to the same quarter last year, the company forecasts quarterly revenue to reach $11 billion in the second quarter, which could pave the way for continued share price growth. According to Jensen Huang, founder and CEO of Nvidia, companies are racing “to apply generative AI into every product, service and business process,” which is expected to increase demand as the AI race unfolds.
GAAP diluted EPS came in at $0.82 for the quarter, representing a stellar 44% increase from the prior quarter and up 28% year-over-year. On the other hand, non-GAAP diluted EPS came in at $1.09 for the quarter, representing a healthy 24% quarter-on-quarter increase but down 20% year-over-year. Nvidia’s top and bottom-line quarterly results breezed past Wall Street expectations with an impressive 10.38% beat on revenue expectations and an 18.80% beat on earnings expectations.
Nvidia’s data centre segment posted record quarterly revenue of $4.28 billion, a staggering 14% year-over-year increase and up 18% from the previous quarter as companies race to integrate artificial intelligence services into their products. With ChatGPT reaching 100 million users in a mere 60 days, the large language model has emerged as the fastest-growing user platform in the world, highlighting the incredible demand for artificial intelligence services, which bodes well for Nvidia’s data centre segment. Microsoft has also recently declared plans to incorporate the Nvidia AI Enterprise software into its Azure Machine Learning, enabling enterprises to expedite their AI endeavours. With the market for artificial intelligence expected to undergo exponential growth over the coming decade, this could only be the beginning of Nvidia’s success. While its data centre segment posted record revenue for the quarter, the gaming segment saw first-quarter revenue slip to $2.24 billion, down 38% year-over-year but up 22% from the previous quarter.
However, the company’s prowess in AI extends beyond its data centre, as evidenced by its presence in the automotive industry. Within its automotive segment, Nvidia offers the remarkable Drive platform – an all-encompassing hardware and software solution designed for car manufacturers seeking to embrace the transformative power of fully autonomous self-driving technology.
With a current trailing twelve-month (TTM) price-to-earnings (P/E) ratio comfortably exceeding 200x, Nvidia’s stock price is trading at a significant premium to its earnings. Given the company’s competitive stance in the semiconductor industry, investors are willing to pay a substantial multiple of its earnings to purchase its shares. Still, while a high P/E ratio may indicate optimism and high growth expectations, it can also signal the potential for overvaluation. However, our estimated fair value lies at approximately $420 per share, indicating the potential for some upside to materialise.
Technical Analysis
Analysing the weekly chart of Nvidia, it is clear that bullish sentiment has paved the path for the company’s share price to surge to historic levels.
For the bull case, if positive market sentiment persists, the potential exists for Nvidia’s share price to increase further and surpass the $420 fair value estimate, which is a major resistance level. For the bear case, the possibility exists for a price retraction toward lower levels, with the $390 level (horizontal black dotted line) of initial interest.
If the support at $390 does not hold, then we could possibly see further downside towards the next support level at $335 (horizontal black dotted line), which may pique long-term investor’s interest.
Summary
Nvidia (NASDAQ: NVDA) is seemingly chipping away at the $1 trillion market capitalisation level as the hype around artificial intelligence gives the giant semiconductor producer a significant competitive edge. With the company forecasting continued growth in demand for its products, the sky is the limit for this trailblazer. The bulls could see Nvidia’s share price surpassing our fair value estimate of $420 per share. At the same time, the bears could potentially drag the share price toward lower levels, which may seek interest from investors looking for lower entry points.
Sources: Bloomberg, Companies Market Cap, Koyfin, NVIDIA, The Motley Fool, Trading View, Wall Street Journal
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