Nvidia (NASDAQ:NVDA) is generating headlines again, this time on an analyst price upgrade. Experts led by KeyBanc analyst John Vinh raised their NVDA stock price target to $550 from $500 as part of a “broader review of the semiconductor industry.” Still, while shares have skyrocketed this year, they’re also incredibly overheated, raising sustainability concerns.
Fueled by the artificial intelligence (AI) surge, Nvidia has soared based on its applicability. With a particular focus on graphics processing units (GPUs) — which are optimal for deep learning models — the computational capabilities of this company’s chips have helped it reach the forefront of the AI narrative.
Nvidia recently became the first chipmaker to hit a market capitalization of $1 trillion. Management has also emphasized that the AI integration trend won’t fade anytime soon.
From KeyBanc’s perspective, Vinh conducted channel checks in Asia. His research indicated “strong interest in AI servers that are ‘not only coming from cloud but also enterprise and from AI startups.’” The analyst also noted that production delays at rival Advanced Micro Devices (NASDAQ:AMD) — a firm that routinely beats Intel (NASDAQ:INTC) on key metrics — may bolster Nvidia’s datacenter revenue next year.
With all that in mind, the bullishness toward NVDA stock appears to be quite reasonable. But are these factors enough to justify exposure to shares at current levels?
NVDA Stock Is Hot. But Is It Too Hot?
Most Wall Street analysts overwhelmingly endorse Nvidia because of the rapidly burgeoning AI industry. According to Grand View Research, the global AI market size reached a valuation of $136.55 billion last year. Experts project that the sector will expand at a compound annual growth rate (CAGR) of 37.3% from 2023 to 2030. By the end of that period, the AI industry could see revenue of more than $1.8 trillion.
Those are some fascinating numbers. However, it’s also worth pointing out that NVDA stock is incredibly overheated by virtually all major financial metrics. According to Gurufocus, NVDA trades at a trailing price-to-earnings (P/E) multiple of 220.7 times and a forward earnings multiple of 55.7 times. Both of these stats rank well above average for the semiconductor industry.
To be fair, Nvidia is a growth machine, with the company posting (on a per-share basis) a three-year revenue expansion rate of 34.5%. This stat beats out nearly 88% of the competition. At the same time, though, NVDA trades at a price-to-sales (P/S) multiple of 40.9 times. Here, the stat ranks worse than 97% of sector rivals.
Why It Matters
According to TipRanks, NVDA stock enjoys a consensus “strong buy” rating based on 33 analyst opinions. This assessment breaks down as 30 “buy” ratings, two “hold” ratings and one “sell.” The average price target for Nvidia lands at $482.28, implying about 14% upside potential.
On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
