We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Is the Nvidia Rally Coming to an End? Probably Not And This is Why
Read MoreHide Full Article
Not only has Nvidia(NVDA - Free Report) become one of the largest companies in the world this year, now valued at over $1 trillion, but it has also become one of the most controversial.
Many market participants are quick to claim that Nvidia’s epic rally is just an AI bubble, not grounded anywhere in reality. They usually then cite that the company is trading at 35x sales, or 100x earnings and compare it to the early 2000s technology bubble. But these investors are missing the forest from the trees, especially if they are looking at trailing sales and earnings.
Based on the most recent earnings estimates, which have exploded higher, Nvidia is now trading at 46x one year forward earnings. That is below its five-year median of 55x, and just above its 10-year median of 40x. Not an absurd valuation at all!
Image Source: Zacks Investment Research
Although NVDA is getting all the attention today, investors shouldn’t forget that it has been putting up epic returns for decades. Over the last twenty years it has compounded at an astounding 33.5% annually and looks like it could continue.
Image Source: Zacks Investment Research
What are they missing?
Most investors are simply underestimating the significance of the AI computing revolution, and more importantly, how Nvidia is probably the most important player in the game.
Critical to expanding the use of Artificial Intelligence is significantly more computing power, and Nvidia is today the only manufacturer that can provide the big guns.
While Nvidia has been the worldwide leader in graphics chips over the last couple of decades, its move into AI infrastructure is just as significant a business development and opens a whole new dimension for the company.
It is likely that Nvidia’s datacenter division, which is growing like a weed, 171% YoY at the most recent earnings report, leads business growth for years to come. Demand for the data center products is so high that the company can’t keep up, and had they been able to, would have likely made the recent earnings report even more impressive than it already was.
Google Cloud Partnership
Just this week Nvidia and Alphabet (GOOGL - Free Report) announced an exciting new partnership. Big technology companies like Alphabet are Nvidia’s ticket to even further sales and earnings growth.
Google Cloud and Nvidia have extended their collaboration to enhance AI computing, software, and services. The partnership introduces new AI infrastructure and software, enabling the creation and deployment of large generative AI models and accelerating data science workloads.
This collaboration leverages Nvidia’s technology, which has been used by Google DeepMind and Google Research teams, and makes it accessible to Google Cloud customers. The integration includes optimized hardware and software solutions, such as the use of Nvidia GPUs for Google's large language model framework, PaxML, resulting in improved scalability and experimentation.
Furthermore, Google's serverless Spark is integrated with NVIDIA GPUs through the Dataproc service to expedite data preparation for AI development. This partnership showcases an array of hardware and software integrations, underscoring both companies’ commitment to driving innovation and efficiency in the AI landscape.
Earnings
Nvidia’s most recent Q2 earnings report wowed even investors who were bullish on the stock. The company grew its top line by 101% YoY to $13.5 billion, while earnings were up 429% YoY to $2.70 per share.
As I stated above, demand for Nvidia’s new data center products is so high that it was unable to fulfill all the orders, meaning the report could have been even more outstanding. Fortunately, CEO Jensen Huang says production capacity will be ramping up “substantially” over the next year.
Earnings have been unanimously revised significantly higher by analysts. With such incredible earnings upgrades, Nvidia enjoys a Zacks Rank #1 (Strong Buy) rating.
Image Source: Zacks Investment Research
Technical Perspective
As extended as Nvidia’s chart is to the upside, there is just so much going on for this company, it could easily remain bid through the end of. Because of the immense growth the company has experienced in just the last few months, the floor price of the stock is now much higher.
And although it has been a messy process, the stock price has built out some sideways action and formed a bull flag, which it has already broken out from. It is never easy paying up for a stock, but NVDA is likely to continue to get bid.
Image Source: TradingView
Bottom Line
There is obviously something bigger that is happening in the background that is propelling Nvidia stock to such heights. The artificial intelligence revolution could potentially be as significant as the popularization of the internet, and as of right now there is hardly a better stock to position for that trend than Nvidia.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Shutterstock
Is the Nvidia Rally Coming to an End? Probably Not And This is Why
Not only has Nvidia (NVDA - Free Report) become one of the largest companies in the world this year, now valued at over $1 trillion, but it has also become one of the most controversial.
Many market participants are quick to claim that Nvidia’s epic rally is just an AI bubble, not grounded anywhere in reality. They usually then cite that the company is trading at 35x sales, or 100x earnings and compare it to the early 2000s technology bubble. But these investors are missing the forest from the trees, especially if they are looking at trailing sales and earnings.
Based on the most recent earnings estimates, which have exploded higher, Nvidia is now trading at 46x one year forward earnings. That is below its five-year median of 55x, and just above its 10-year median of 40x. Not an absurd valuation at all!
Image Source: Zacks Investment Research
Although NVDA is getting all the attention today, investors shouldn’t forget that it has been putting up epic returns for decades. Over the last twenty years it has compounded at an astounding 33.5% annually and looks like it could continue.
Image Source: Zacks Investment Research
What are they missing?
Most investors are simply underestimating the significance of the AI computing revolution, and more importantly, how Nvidia is probably the most important player in the game.
Critical to expanding the use of Artificial Intelligence is significantly more computing power, and Nvidia is today the only manufacturer that can provide the big guns.
While Nvidia has been the worldwide leader in graphics chips over the last couple of decades, its move into AI infrastructure is just as significant a business development and opens a whole new dimension for the company.
It is likely that Nvidia’s datacenter division, which is growing like a weed, 171% YoY at the most recent earnings report, leads business growth for years to come. Demand for the data center products is so high that the company can’t keep up, and had they been able to, would have likely made the recent earnings report even more impressive than it already was.
Google Cloud Partnership
Just this week Nvidia and Alphabet (GOOGL - Free Report) announced an exciting new partnership. Big technology companies like Alphabet are Nvidia’s ticket to even further sales and earnings growth.
Google Cloud and Nvidia have extended their collaboration to enhance AI computing, software, and services. The partnership introduces new AI infrastructure and software, enabling the creation and deployment of large generative AI models and accelerating data science workloads.
This collaboration leverages Nvidia’s technology, which has been used by Google DeepMind and Google Research teams, and makes it accessible to Google Cloud customers. The integration includes optimized hardware and software solutions, such as the use of Nvidia GPUs for Google's large language model framework, PaxML, resulting in improved scalability and experimentation.
Furthermore, Google's serverless Spark is integrated with NVIDIA GPUs through the Dataproc service to expedite data preparation for AI development. This partnership showcases an array of hardware and software integrations, underscoring both companies’ commitment to driving innovation and efficiency in the AI landscape.
Earnings
Nvidia’s most recent Q2 earnings report wowed even investors who were bullish on the stock. The company grew its top line by 101% YoY to $13.5 billion, while earnings were up 429% YoY to $2.70 per share.
As I stated above, demand for Nvidia’s new data center products is so high that it was unable to fulfill all the orders, meaning the report could have been even more outstanding. Fortunately, CEO Jensen Huang says production capacity will be ramping up “substantially” over the next year.
Earnings have been unanimously revised significantly higher by analysts. With such incredible earnings upgrades, Nvidia enjoys a Zacks Rank #1 (Strong Buy) rating.
Image Source: Zacks Investment Research
Technical Perspective
As extended as Nvidia’s chart is to the upside, there is just so much going on for this company, it could easily remain bid through the end of. Because of the immense growth the company has experienced in just the last few months, the floor price of the stock is now much higher.
And although it has been a messy process, the stock price has built out some sideways action and formed a bull flag, which it has already broken out from. It is never easy paying up for a stock, but NVDA is likely to continue to get bid.
Image Source: TradingView
Bottom Line
There is obviously something bigger that is happening in the background that is propelling Nvidia stock to such heights. The artificial intelligence revolution could potentially be as significant as the popularization of the internet, and as of right now there is hardly a better stock to position for that trend than Nvidia.