In 2023, Nvidia (NASDAQ:NVDA) is the clear winner of the artificial intelligence (AI) arms race, and the bulls are apparently riding the trend to the end. On the heels of a blowout quarterly earnings release, Nvidia is proving that valuations are less important than sentiment in the short term. Personally, I am neutral on NVDA stock as a value-focused investor, but I can’t deny the momentum that the Nvidia bulls are enjoying now.
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Nvidia is well-known for manufacturing components for tech gadgets. This year, investors and commentators have heavily favored Nvidia because the company makes microchips that can be used to power generative AI applications.
Expectations ran high as Nvidia geared up to present its second-quarter Fiscal Year 2024 earnings results. In a typical example, HSBC analyst Frank Lee raised his NVDA stock price target from $600 to $780 before the announcement. Now, however, Wall Street’s experts will probably have to lift their targets even further as Nvidia rakes in the revenue and rides the AI wave to unforeseen heights.
Nvidia Zooms Before and After the Quarterly Report
I’ll admit it; Nvidia’s stock chart makes me uncomfortable. The shares traded at around $110 less than a year ago but closed at $471 and change on August 23, a few minutes before Nvidia announced its Q2-2023 earnings data.
With my eyes glued to the screen, I watched with amazement as NVDA stock gained an additional 8%+ in after-hours trading (now 6%+) and pierced above $500. Perhaps I shouldn’t have been amazed, though, as share-price trends can continue in one direction for a surprisingly long time.
I can sit here and complain all day long about how Nvidia’s GAAP trailing 12-month P/E ratio of 238.38x is too high (for comparison, the sector median P/E ratio is 24.65x). Complaining won’t change anything, though, since (to borrow a Benjamin Graham/Warren Buffett quote) the stock market might be a weighing machine in the long run, but it’s a voting machine in the short term.
I could also gripe about Nvidia’s meager dividend or about the parallels between generative AI in 2023 and the internet bubble of early 2000. Again, complaining doesn’t accomplish anything, and as we’ll see in a moment, I can’t argue with Nvidia’s stellar financial stats.
Nvidia Blows Analysts’ Forecasts out of the Water
No matter how you slice it, Nvidia performed extremely well in this year’s second quarter. Starting with the top-line results, Nvidia’s revenue surged 101% year-over-year and 88% quarter-over-quarter to $13.51 billion, with AI chips strongly contributing to the company’s sales.
Nvidia CEO Jensen Huang drove this point home in the press release, declaring, “A new computing era has begun. Companies worldwide are transitioning from general-purpose to accelerated computing and generative AI,” and, “The race is on to adopt generative AI.”
I’ve seen tech business CEOs stuff their statements with mentions of AI as a gimmick, but Huang has earned the right to emphasize Nvidia’s stature as an AI-chip leader. After all, analysts had expected Nvidia to generate $11.2 billion in quarterly revenue, and the company easily topped that.
Now turning our attention to the company’s bottom line, Nvidia reported adjusted diluted earnings of $2.70 per share, up 148% quarter-over-quarter and 429% year-over-year. Analysts on Wall Street, in contrast, had forecast a quarterly EPS of $2.08 for Nvidia.
Of course, we can’t ignore Nvidia’s ambitious revenue outlook. The company’s current-quarter guidance calls for $16 billion in revenue, plus or minus 2%. Meanwhile, the consensus estimate among analysts called for $12.5 billion in revenue. There’s no guarantee that Nvidia will actually generate $16 billion in three months’ time, but the management’s optimism is certainly notable.
Is NVDA Stock a Buy, According to Analysts?
On TipRanks, NVDA comes in as a Strong Buy based on 34 Buys and two Hold ratings assigned by analysts in the past three months. The average Nvidia stock price target is $535.67, implying 13.7% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell NVDA stock, the most accurate analyst covering the stock (on a one-year timeframe) is Harlan Sur of JPMorgan (NYSE:JPM), with an average return of 79.12% per rating and a 96% success rate. Click on the image below to learn more.
Conclusion: Should You Consider NVDA Stock?
I don’t plan to invest in Nvidia at the current share price, but I’m looking at the situation through the lens of a value-focused contrarian. For financial traders who prefer to emphasize momentum over value, I can’t blame them if they want to jump on the Nvidia bandwagon.
However, I’ll stay neutral on NVDA stock and will just stay on the sidelines, in awe of how far an asset’s price can move when the market really likes a company. If riding a trend to the very end is your cup of tea, though, then you certainly can consider taking a share position in Nvidia.
