How Confident Should Nvidia Investors Be Heading Into 2024?

Stocks to buy

Backing Nvidia (NASDAQ:NVDA), the leading chip manufacturer in the generative AI boom, has proven lucrative in 2023. The company’s H100 and A100 chips are in high demand. And while these chips may face competition from AMD’s (NASDAQ:AMD) promising new chips, NVDA stock is launching its H200 chips, an upgrade to the H100. These chips are expected to be commercially available in Q2 2024.

Both companies competed for market share in the sector. Nvidia’s H100 chips have been in high demand. AMD stock has remained resilient, indicating the market’s recognition of AMD as a strong competitor. Investing in both Nvidia and AMD offered potential gains in the generative AI and large language models space.

That said, investors might be wondering, is NVDA a buy now? Let’s look into the numbers and recent updates on the company.

Possible Stock Split

Nvidia has undergone five stock splits, with the latest being a four-for-one split in July 2021, proving successful. Announced when shares were $560, NVDA stock surged past $800 the following month. Two years later, Nvidia shares surpassed $400 again, surging to more than $500 per share a few months ago. 

Presently, Nvidia shares carry a higher price tag compared to most mega-cap peers, exceeded only by only a few massive American companies by market cap.

Regardless of stock splits, Nvidia remains a leading company in AI innovation, driven by high demand for its H100 GPUs. Tech giants like Microsoft (NASDAQ:MSFT) and Meta Platforms (NASDAQ:META) recently acquired over 150,000 units of Nvidia’s chips this year, leading to prolonged delivery wait times. Wall Street anticipates Nvidia’s revenue to double to $90 billion next year. 

These stock splits indicate just how fast Nvidia has grown in recent years. However, such companies always warrant caution from value-based investors given the heightened valuation multiples such companies often trade at.

Plans for Expansion in Vietnam

Nvidia CEO Jensen Huang announced plans to enhance partnerships with Vietnam’s leading tech firms, emphasizing AI talent development and digital infrastructure improvement during his first visit to Hanoi. Huang expressed interest in establishing a second Nvidia base in Vietnam.

Having invested $250 million in Vietnam, Nvidia collaborated with top companies to advance AI in cloud, automotive, and healthcare sectors. This commitment also aids supply chain diversification and aligns with deepening U.S.-Vietnam diplomatic relations amid U.S.-China tensions. Nvidia shares, having tripled in value this year, were 1.7% lower on Monday morning.

Nvidia’s Valuation Is High, But Not Crazy

Nvidia’s current price-to-sales ratio is higher than in late 2022, but its current multiple of 25-times is still below its longer-term average. The company’s recent top-line growth acceleration contributed to a decline in this ratio. 

Additionally, Nvidia’s trailing price-to-earnings (P/E) ratio of 61-times is slightly lower than the 2022 year-end multiple of 62-times and well below its five-year average of 77-times. Considering Nvidia’s growth in the past and ongoing fiscal year, buying this stock remains a compelling option for long-term investors.

Nvidia concluded fiscal 2023 with a flat revenue of $27 billion. In the first three quarters of fiscal 2024, it achieved almost $39 billion, an 85% YoY increase. The Q4 revenue guidance of $20 billion suggests a potential year-end total of $59 billion, marking a significant 118% rise from fiscal 2023. 

Nvidia is currently growing much faster than the previous year, justifying its valuation with rapid revenue and earnings growth. Notably, the stock’s forward sales and earnings multiples are more favorable.

Buy NVDA Stock, But Be Smart About It

Surging demand for Nvidia’s AI graphics cards is driving growth. Despite supply constraints, the company increased production each quarter in the past year and plans to triple the flagship H100 AI GPU’s output next year. A more powerful chip is also in the works, indicating potential for further revenue acceleration.

Meeting analysts’ forecasts with $90 billion in revenue next year, Nvidia’s market cap could reach $1.8 trillion, representing a potential 60% increase. Investors contemplating buying this AI stock may find an opportune moment before further potential jumps. I’d recommend waiting for dips before entering this stock, as it is pricey. But over the long-term, there’s a reason why investors have been rewarded for owning this name.

On the date of publication, Chris MacDonald has a LONG position in META. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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