This Equity Generated a $1,000 to $1.4 million Transformation, and one Wall Street Expert Predicts an Additional 34% Increase.
This Equity Generated a $1,000 to $1.4 million Transformation, and one Wall Street Expert Predicts an Additional 34% Increase.
The financial market has kicked off the year 2024 with a bang. Both the S&P 500 and Nasdaq Composite are hitting record highs, and there's no sign of this momentum slowing down.
Big tech is a significant factor behind this market surge. In fact, the "Powerful Eight" tech stocks have become synonymous with artificial intelligence (AI).
Within this group of tech giants, Nvidia (NVDA 3.08%) has gained a lot of attention and for good reason. Nvidia's graphic processing units (GPUs) and data center services are powering an expanding range of generative AI applications across various industries.
Since its initial public offering in 1999, Nvidia stock has delivered an incredible total return of 138,700%. This means that if you had invested $1,000 at the time of the IPO and held onto it until now, your investment would be worth around $1.4 million today.
Despite the impressive gains, one financial analyst believes that there's still room for growth. C.J. Muse from Cantor Fitzgerald recently increased his price target for Nvidia to $1,400, implying a potential increase of around 34% from its current trading price.
Let's delve into Nvidia's business and understand why its best days might still be ahead.
Nvidia's business is performing exceptionally well
Nvidia is the mastermind behind a remarkable line of GPUs. Its semiconductor chips are used for training powerful language models and a host of machine learning applications. At the moment, Nvidia's A100, H100, and Blackwell chips are considered the top GPUs in the market.
The demand for Nvidia's GPUs can be encapsulated in a single statistic: Nvidia accounts for an estimated 80% of the AI-chip market.
Due to its dominance in the chip market, Nvidia enjoys strong pricing power. This is an essential aspect to understand, as it directly impacts Nvidia's overall business.
Looking at the chart, you'll notice that Nvidia's operating expenses have started to increase significantly over the past couple of years. While strong demand for its products and services is a positive, ensuring supply to meet that demand can be costly.
Typically, when businesses face challenges in their supply chain or decide to invest heavily in research and development to surpass their competitors, operating margins and profitability tend to decrease. However, Nvidia is an exception. The company's high demand allows it to increase its prices, and customers are still willing to pay. As a result, despite rising expenses, Nvidia's revenue is growing at an even faster pace.
This dynamic is particularly advantageous given that Nvidia's gross profit margin is expanding, directly contributing to its bottom line.
During its first quarter of 2024, Nvidia's revenue skyrocketed by 262% year-over-year, while free cash flow grew by nearly six times to $14.9 billion.
Where will Nvidia stock go?
It's understandable if you're skeptical about Nvidia's ability to maintain this growth pace. With competitors like Advanced Micro Devices and Intel already offering competing chips, and tech giants such as Amazon and Meta Platforms developing their own chip lines, there's a good chance that Nvidia will eventually lose market share.
However, I view this competition as a positive. Remember, when Nvidia was founded 20 years ago, its goal was to improve the graphics in video games. While gaming remains an essential part of Nvidia's business, the company has done an outstanding job diversifying into other areas of computing. In fact, Nvidia's largest businesses now stem from AI-related services.
I can't predict with certainty whether Nvidia's stock will reach $1,400 per share or not. However, I'm incredibly optimistic that better days are still ahead. For now, Nvidia is the uncontested leader in AI chips, and its soaring profits provide Nvidia with unmatched financial flexibility to explore new growth opportunities.
Considering the AI revolution is still in its early stages, Nvidia should continue to benefit from secular tailwinds for years to come. Investors with a long-term perspective might want to consider buying Nvidia shares now. The company has already made many millionaires, and its current growth trajectory suggests that a new wave of success is on the horizon.
In the realm of investing, many financial analysts are keeping a close eye on Nvidia due to its exceptional performance in the AI-chip market. With Nvidia accounting for an estimated 80% of this market, its strong pricing power allows it to increase prices while still maintaining high demand, resulting in a significant revenue growth despite rising operating expenses.
Given Nvidia's dominance in AI-related services and the company's financial flexibility, along with the AI revolution still being in its early stages, some investors with a long-term perspective might consider purchasing Nvidia shares, hoping to join the ranks of those who have already benefited from the company's success.