The artificial intelligence mega-trend has been the key factor behind the tremendous rise in price of Nvidia (NASDAQ:NVDA) stock in 2023.
However, don’t assume that AI catalysts have been fully factored into the NVDA stock price.
It’s important to note that, while “AI mania” is what has propelled shares to a trillion dollar valuation, this “mania” has been over just one type of artificial intelligence.
That would be generative AI, the technology behind platforms such as OpenAI’s ChatGPT. Nvidia is benefiting strongly from the growing demand for the chips used to power generative AI. This company is the leading provider of them.
However, beyond just this relatively new end user market, other AI-related user markets will emerge in the coming years/decades. As I will detail further below, this factor further strengthens the long-term bull case for this top-performing mega-cap tech stock.
NVDA Stock: What the Nay-Sayers Miss
As I discussed recently, following the success of ChatGPT, big tech companies are scrambling to grab their piece of the burgeoning generative AI market.
Nvidia, as the supplier of the “picks and shovels” (AI chips) for this figurative gold rush, is sitting in the catbird’s seat right now.
This trend has already had a positive impact on the company’s earnings results. It is expected to have an even greater impact on results this quarter, as seen by management’s raising of quarterly revenue guidance from $7.3 billion to $11 billion.
Still, some skeptics may believe that the demand tailwind from big tech’s big move into generative AI is already baked into the NVDA stock price.
Yes, after its threefold run-up in price, NVDA may factor in a lot of its generative AI tailwinds. However, I wouldn’t say today’s stock price captures all of Nvidia’s AI potential.
For one, the company not only has the potential to grow chip sales, but create a steady subscription-based revenue stream, because of soaring demand for generative AI computing power.
Like I mentioned above, the rise of other types of AI bodes extremely well for further demand growth. This is what the Nvidia nay-sayers cannot understand.
More Room to Run, Even at $425 per Share
After cracking $400 per share, the skeptics may have thought that NVDA stock would finally hit a wall. Whether from the market coming to the conclusion that it had gone overboard, or from macro developments affecting overall market sentiments, after this shares would certainly begin to make their retreat.
So far, though, this has not played out. Nvidia is currently holding steady at around $425 per share. I’m not saying that a slight pullback/correction will not arise. Broad market bearishness could return unexpectedly, given that issues like inflation and interest rates have yet to resolve.
But irrespective of the near-term, NVDA shares still have ample room to run in the long-term. This explains why one analyst, Tigress Financial Partners’ Ivan Feinseth, recently gave the stock a staggeringly-high price target of $560 per share.
Mainly, for reasons similar to the ones expressed above.
As Feinseth put it, “Nvidia is one of the best ways to play the accelerating adoption of AI into all types of technologies and applications.”
In other words, rising demand for AI chips used in areas like healthcare and self-driving cars will keep Nvidia in high-growth mode for years to come.
The Takeaway
Considering all of Nvidia’s AI catalysts, plus another strong non-AI catalyst (a rebound in gaming/PC chip demand), there’s much in play to support a further move higher for NVDA, even as it sports a rich valuation of 54.6 times forward earnings.
If all of these catalysts play out, Nvidia stands to experience an earnings growth bonanza. This in turn will enable shares to not only sustain, but add to, their valuation.
I’m not the only one expressing this level of confidence. Check out long-term sell-side earnings forecasts for Nvidia. They’re calling for earnings to triple by fiscal year ending January 2026. That’s after bouncing back in a big way this fiscal year (ending January 2024).
Given the company’s AI potential beyond just generative AI, consider yourself to have even greater reason to lock down a NVDA stock position today.
NVDA stock earns an A rating in Portfolio Grader.
On the date of publication, Louis Navellier had a long position in NVDA. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
