What can be said about Nvidia (NVDA) that hasn’t already been said? The semiconductor giant ended 2023 delivering not one, not two, but three breathtaking quarters in a row. Investors rewarded the stock with a massive gain of 240%, compared to the 24% rise in the S&P 500 index. Investors who are heavily positioned in the stock and sitting on these massive gains are, understandably, wondering what can Nvidia do for an encore in 2024.
The bears, meanwhile, insist not only is the stock in a bubble, but its due for a significant selloff. Tuesday's 2.73% pullback did nothing to dispel the typical valuation concerns. However, what is often missing from these bearish arguments is the fact that, as Nvidia's stock have risen, the company's fundamentals have also improved. For example, there continues to be relentless demand for artificial intelligence (AI) technology, which is still in the early stages of growth.
Companies are scrambling to identify AI opportunities and/or establish their generative AI capabilities to either improve their market position or operate their businesses more efficiently. However, very few companies, particularly from an enterprise perspective, can realistically say they are where they want to be for widespread use. That is where Nvidia comes in. Nvidia’s chips will help these corporations achieve their AI objectives, whether it be via productivity gains or efficiency from AI automation, suggesting there is still an extremely long growth runway ahead.
This trend has already begun, evidenced by Nvidia’s most recent Q3 results, where revenue, especially in the datacenter, surged almost three-fold (280%) on a year-over-year basis to $14.51 billion, while rising 41% from the second quarter. On the bottom line, Nvidia’s net income rose from $680 million in Q3 of 2022 to staggering $9.2 billion in Q3 of 2023. If you’re keeping score at home, that equates to a year-over-year increase of 1259% on a non-adjusted basis. Even on an adjusted basis the profit growth equates to an almost 600% gains, rising from $1.45 billion to $10.02 billion.
So, back to my original question, does the stock’s 240% gain in 2023 still seen unwarranted? This supports the thesis that, as the stock has risen, so have Nvidia’s fundamentals. And here's the thing: Even with the strong 2023 return, it’s not as if Nvidia stock has been on a upward trajectory to the moon. Consider that Nvidia ended 2023 at a price of $495.22. Yet on July 14, the stock reached an intraday high of $480.88. This means for five months, even amid two impressive quarterly reports, Nvidia stock appreciated just 3% through the rest of the year.
During those five months of relative stagnation of the stock, analysts have been scrambling to boost the company’s fiscal year 2024 profit estimates, during which EPS forecast have risen by $10.43. This means, even as the stock has risen, the shares have gotten relatively cheaper on a forward-looking basis. The unrelenting demand for AI continues to fuel analysts’ profit estimates. Meanwhile, each reporting quarter, Nvidia is blowing away analysts’ estimates. So, why, then, should the stock not reflect the company's output?
Would (or should) anyone be surprised if Nvidia has another dominant year in 2024? Looking ahead for Q4, Nvidia expects revenue at $20 billion, well above the $18.35 billion that analysts were expecting. With a Q4 guidance that projects almost tripling the revenue growth for the third quarter a year ago, Nvidia signaled that the AI party is far from over. But it’s not just about AI. Lest we forget, the company's Q3 Gaming revenues rose by 81%, while and Professional Visualization posted revenue growth of 108%.
The numbers across the board are breathtaking considering the consistently high expectations Nvidia continues to face each quarter. When adding the company’s revenue totals for the first three quarters of the year and factoring its Q4 guidance, Nvidia is projected to deliverer fiscal 2023 revenue of close to $60 billion. With Nvidia stock trading for just 24 times current forward estimates, it belongs in every growth portfolio for 2024 given the company’s strong fundamentals.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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