NVDA Stock: While others worry, back up the truck
For most of 2023, Nvidia (Nasdaq:NVDA) Stock news has been positive, but lately, much of it has been of the negative kind. Market enthusiasm for AI stocks continues to slow. High interest rates make investors hesitant about technology stocks, which, based on traditional valuation metrics, look expensive in a 5% interest rate world.
Moreover, Nvidia appears weak, as tense relations between the US and China affect its business. Since these factors create fear, uncertainty, and doubt about the stock, it’s no surprise that many believe a continued correction is in store for the stock. However, it is not set in stone, as I will explain below.
NVDA Stock: Don’t Panic
Concerns about Nvidia may be growing among the investing public, but many suggest the market is overreacting to this news. Yes, there are concerns about slower growth in the next fiscal year (which ends in January 2025), after the impressive levels of growth during this fiscal year.
Since the valuation of NVDA stock (forward earnings multiple in the top 30) is based on expectations of high growth in the future, I can understand why there is this concern. However, while growth is likely to slow, it is not close to stopping. The sale forecast calls for Nvidia’s revenue to grow 46.8% through fiscal 2025. Not too shabby.
Profits for the next fiscal year are expected to rise by an even greater amount (52.8%). This high level of expected earnings growth calls into question the argument that stocks have become too expensive. Of course, expectations are always subject to change. One recent negative development (US restrictions on AI chip sales to China) could have a $5 billion impact on sales.
However, total AI chip sales are in the tens of billions (and still rising). Demand from other end users will likely help mitigate the impact of these geopolitical headwinds.
The path to $1000 per share?
As demand for AI chips continues to grow, and as demand trends improve among non-AI end-user markets, Nvidia appears well positioned to meet/exceed expectations with its subsequent earnings releases.
Even if interest rates remain high over the next 12 months, with continued pressure on the market, the high level of earnings growth could help NVDA stock bounce back. Reaching previous price levels (north of $500 per share) is within reach.
However, it’s not as if the only “play” with NVDA is to buy now at around $410 per share, and turn the price around once it hits $500 per share again. Over the next few years, this stock may rise to prices approaching, or even exceeding, $1,000 per share. As I said recently, Nvidia is the dominant name in AI chips, and that’s not going away.
Even as competitors try to catch up, Nvidia’s market share (estimated at 70%-80%) may not decline much. With the AI chip market poised to continue climbing at a rapid pace, don’t rule out the chances of NVDA hitting the earnings level needed to send this stock to $1,000 per share (about 144% above today’s price levels).
There is still good reason to stay bullish
In the near term, these concerns may continue to weigh on NVDA’s performance. Shares may slip below the $400 share price levels. However, if concerns continue to weigh on Nvidia in the coming weeks, fear not.
Take advantage instead. Entering/adding to a position may start yielding results as soon as November 21st. That’s when the company next announces its quarterly earnings. The latest results/updates to guidance may calm concerns, leading to a post-earnings rally.
Even if there is no post-earnings upside, barring unexpected news/results revelations that fundamentally change the story, you still hold the position.
It may take several quarters for the market as a whole to once again take a bullish stance on NVDA stock, but over time, those who focus on the future, and not dwell on temporary fears, can be handsomely rewarded.
NVDA stock gets an A rating Portfolio scores.
At the date of publication, Louis Navellier held a long-standing position at NVDA.
The member of the InvestorPlace research team primarily responsible for this article has not held (either directly or indirectly) any positions in the securities mentioned in this article.