Nvidia (NASDAQ: NVDA) shares rocketed 745% during the 18-month period that ended on June 30, 2024, as enthusiasm about artificial intelligence (AI) swept the market. But shares have declined 5% since that halfway point, leaving some investors to wonder whether the window of opportunity has closed.
Wall Street has a clear answer: No, it's not too late to buy Nvidia. Of the 64 analysts that follow the company, 94% rate the stock a buy and 6% rate the stock a hold. Not a single analyst recommends selling at the present time. Additionally, Nvidia has a median 12-month price target of $150 per share, implying 28% upside from its current share price of $117.
Beyond that, some analysts expect colossal gains. In June, Beth Kendig at the I/O Fund estimated Nvidia would be worth $10 trillion by 2030. That implies 250% upside from its current market value of $2.8 trillion. In September, Phil Panaro at Boston Consulting Group predicted that Nvidia would be an $800 stock by 2030. That implies about 585% upside.
Investors may find that surprising given that Nvidia is already one of the largest companies in the world. But AI could be the investment opportunity of a lifetime, and Nvidia is arguably the most important company to the AI economy. Here's what investors should know.
The investment thesis for Nvidia spans hardware, software, and services
Nvidia builds the most coveted graphics processing units (GPUs) in the computing industry. GPUs are chips that perform technical calculations more quickly and efficiently than central processing units (CPUs), which lets them accelerate complex workloads like training large language models and running artificial intelligence (AI) applications.
Nvidia accounted for 98% of data center GPU shipments last year, and its market share in AI chips exceeds 80%, according to analysts. One reason the company has achieved such a dominant position is the superior performance of its hardware. Nvidia chips consistently outstrip products from competitors at the MLPerf benchmarks, objective tests that evaluate AI systems across training and inference tasks.
Another reason Nvidia has achieved such a dominant market position is its CUDA software ecosystem. CUDA comprises hundreds of software libraries that simplify the development of GPU-accelerated applications. No other chipmaker offers anything close to CUDA, so Nvidia GPUs have emerged as the gold standard in data center accelerators.
Nvidia has cemented its dominance in the data center by expanding into adjacent verticals. For instance, the company leads the market in networking equipment used for generative AI, and it recently introduced its first server CPU. Nvidia also offers subscription software and cloud services that support the development of AI applications across a broad range of domains, from recommender systems in retail to computer vision in healthcare.
In short, Nvidia has a durable competitive advantage where AI is concerned not only because its chip are the fastest, but also because it participates in so many parts of the AI economy. To quote Zoe Thomas of The Wall Street Journal, "Nvidia already dominates the market for chips powering the artificial intelligence boom. Now the company is playing a growing role in designing AI data centers."
Nvidia is expected to grow rapidly amid robust demand for AI infrastructure
Grand View Research estimates the AI accelerator market will increase at 29% annually through 2030, while spending across AI hardware, software, and services compounds at 36% annually during the same period. That bodes well for Nvidia and its shareholders.
In May, Toshiya Hari at Goldman Sachs wrote, "We believe Nvidia will remain the de facto industry standard for the foreseeable future given its competitive advantage that spans its hardware and software capabilities, as well as the installed base and ecosystem it has built over multiple decades, and the pace at which it is and will be innovating over the next several years."
But he's not the only Wall Street analyst to lavish Nvidia with praise. Dan Ives at Wedbush Securities has called the company the "foundation of the AI revolution." And Angelo Zino at CFRA believes Nvidia "will be the most important company to our civilization over the next decade as the world becomes more AI-driven."
With that in mind, Wall Street expects Nvidia's adjusted earnings to grow at 49% annually through fiscal 2026 (ends January 2026). That consensus makes the current valuation of 53 times adjusted earnings look quite reasonable. Patient investors can comfortably buy a small position today, and they should consider adding to the position in the event of a pullback.
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Trevor Jennewine has positions in Nvidia. The Motley Fool has positions in and recommends Goldman Sachs Group and Nvidia. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
