Nvidia (NASDAQ:NVDA) is back again making shareholders juicy returns. The company’s share returned a staggering gain of 240% last year, and Nvidia’s Q4 earnings report beat Wall Street’s expectations. Currently, the shares of NVDA stock have risen nearly 60% on a year-to-date basis.
Shares in the acclaimed chipmaker could continue their meteoric rise as AI solutions stay in high demand.
Nvidia dominates in both gaming GPUs and AI chips. Nvidia dominates about 81% of the market for AI chips used in personal computers and data centers. Moreover, Nvidia’s TensorRT software enables fast and efficient inference of AI models on edge devices. The chipmaker has effectively tackled and consolidated this new market in an unprecedented manner, and the only chipmaker likely to begin to rival it in the near future will be Advanced Micro Devices (NASDAQ:AMD), which plans to sell billions worth of AI chips in 2024.
Equities investors betting on the future of AI should certainly be looking to scoop up Nvidia’s share. The below analysis affirms why NVDA stock remains a strong buy.
Nvidia’s continues to crush earnings
Nvidia reported earnings on February 21st, and the results were stunning. Fourth quarter revenues came in at 22.1 billion, up 22% sequentially and 265% on a year-over-year basis. Revenue for the full year increased 126% Y/Y. GAAP earnings per share also rose an astronomic 586% to $11.93. The reason? AI. Much of the company’s growth was due to unprecedented demand for its H100 chips, which help to train large-language models used to power generative AI platforms.
Revenue from Nvidia’s data center business unit also posted amazing results. Data centers, of course, power much of our online lives, from web hosting to a variety of cloud products. Enterprises, across a variety of verticals, including automotive, financial services, and healthcare, leverage Nvidia’s chips in data centers for data processing, training, and inferencing. Data center revenue grew by 409% from 2022.
Overall, Q4 and full-year results beat expectations and as AI remains an obsession of technology industry leaders, Nvidia is likely to continue to report stellar results.
Asia is a major growth lever but needs to be watched carefully
A big question mark surrounding Nvidia’s growth has been developments in its Asia markets. The United States, in its efforts to contain China, has imposed export controls on Nvidia’s new and pricier chips. For Nvidia’s fiscal year 2023, which ends in January 2023, China represented 19% of data center revenues, but in their recent fiscal year 2024 report, China only represented 14% of revenue.
Because of U.S. export controls, Nvidia’s chips have become more expensive in Asia, but this has not necessarily quelled demand for these chips in the region. The RTX 4090 has been difficult to find in Taiwan and parts of Southeast Asia, for example. The AI craze has also hit Japan with some local semiconductor equipment manufacturers seeing a boost in revenue and profits off of sustained demand for AI chips. Nvidia also announced a $1 billion deal to provide India-based companies with its AI chips.
However, Nvidia’s prospects in the world’s second-largest economy remain up in the air. Recently, the chipmaker named Huawei as an important competitor in China, especially in the field of data center chip technology. Nvidia’s growth in the recent quarter clearly shows growth has not waned due to the China issue, but this has to be watched closely in the coming quarters.
Valuation remains not too expensive
Nvidia’s stock is trading at a record high, but its forward P/E ratio is still well below where it was 12 months ago. Then, the stock was trading at over 54.2x forward earnings. With its recent rally of 11% after reporting earnings, the chipmaker’s stock now trades for just 32.1x forward earnings. This puts Nvidia’s earnings multiple below that of its key competitor, Advanced Micro Devices (NASDAQ:AMD), and right around where Intel (NASDAQ:INTC) is trading.
That’s all to say, despite the valuation of NVDA stock looking expensive, it is much less than it was in prior months. The company’s continued growth in the coming months will likely justify where its multiple is sitting now.
On the date of publication, Tyrik Torres did not have (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.
