The Dow Jones Industrial Average is the oldest stock market index in the U.S. It is a price-weighted index that tracks the performance of 30 of the largest publicly traded companies in the country. Its member companies span a variety of sectors and industries, and it is considered by many to be a reliable indicator of stock market performance and the health of the overall economy. There are only a few broad criteria for a company’s inclusion:
- Be incorporated and headquartered in the U.S.
- Have the largest percentage of revenue derived from the U.S.
- Be a member of the S&P 500.
- Be a non-transportation or non-utility company.
- Because it’s price-weighted, the highest-priced stock should be no more than 10 times that of the lowest-priced stock in the index.
- The company must have “an excellent reputation, demonstrate sustained growth, and is of interest to a large number of investors,” according to S&P Global.
Nvidia (NASDAQ: NVDA) is the most recent addition to the Dow Jones, joining the benchmark on Nov. 8 and replacing chipmaker Intel. That makes it one of only three companies to make the cut so far this year.
Over the past decade, Nvidia’s revenue has climbed 2,300%, while its net income has surged 8,460%. This, in turn, has fueled stock price gains of 28,940% (as of this writing). As a result of its meteoric rise, the artificial intelligence (AI) chipmaker recently completed a 10-for-1 forward stock split after years of strong business and financial results. The new, lower share price paved the way for Nvidia’s inclusion in the Dow.
Despite Nvidia’s parabolic move higher, many on Wall Street believe the stock still has further to run.
Image source: Getty Images.
From humble beginnings
Nvidia has long been known for its prowess in developing top-notch graphics processing units (GPUs) that are the first choice among serious gamers. In 1999, the company pioneered the use of parallel computing in its chips, which allows them to run a multitude of mathematical computations simultaneously. By breaking up these massive compute jobs into smaller, more manageable pieces, the company reinvented the gaming industry. In fact, as recently as early 2022, gaming still represented the majority of Nvidia’s revenue. But a paradigm shift was coming.
It didn’t take long before Nvidia realized it could use this technology in a variety of other applications. By 2006, scientists and data researchers discovered that GPUs could be used for other computationally intensive processes, including high-performance computing (HPC), machine learning (a subset of AI), and data centers.
This pivot set the stage for the generative AI revolution that kicked off early last year. It’s estimated that Nvidia controls as much as 98% of the data center GPU market, according to semiconductor analyst company TechInsights. Since the vast majority of AI processing takes place in data centers, the accelerating adoption of AI directly benefits Nvidia, as its GPUs are the cornerstone of the technology.
The company delivered five consecutive quarters of triple-digit, year-over-year growth, so a slowdown was inevitable. However, its most recent results are still enviable. For its fiscal 2025 third quarter (ended Oct. 27), Nvidia generated record revenue of $35 billion, surging 94% year over year and 17% sequentially. This resulted in adjusted earnings per share (EPS) of $0.81, which soared 103%.
Management is predicting its growth spurt will continue, albeit at a more moderate pace. The company is guiding for Q4 revenue of $37.5 billion, which would represent growth of 70%. The biggest unknown, at this point, is the ongoing supply constraints, which management predicts will persist well into next year. However, if Nvidia’s suppliers can accelerate output, sales could jump.
Wall Street is still bullish on Nvidia
Given the company’s pivotal position in the AI revolution, Wall Street is understandably bullish on the company’s prospects. Of the 64 analysts who have offered an opinion thus far in November, 94% rate the stock a buy or strong buy, and none recommend selling. Furthermore, an average price target of roughly $170 suggests there’s still upside potential of 16% compared to Nvidia’s closing price on Wednesday.
Rosenblatt analyst Hans Mosesmann continues to be the biggest Nvidia bull on Wall Street. In the wake of the company’s impressive results and robust guidance, the analyst maintained a buy rating on the stock while increasing his price target to a Street-high $220, which represents potential gains for investors of 50%.
Mosesmann cited Nvidia’s “beat and raise” quarter, strong demand for its Hopper chips, and the upcoming ramp of its Blackwell architecture as catalysts to push the stock higher. He isn’t the only one that’s bullish: A whopping 15 analysts boosted their price targets for Nvidia on the heels of its results.
Some investors may be hesitant to buy the stock given its lofty valuation, and on the surface, that argument has weight. After all, Nvidia is currently selling for 69 times earnings and 38 times sales, which certainly appears expensive. However, Wall Street expects Nvidia to generate EPS of $4.36 in fiscal 2026, which begins in late January. That works out to roughly 33 times forward earnings.
I’d argue that’s an attractive price to pay for an industry leader with unrivaled market share and a solid runway for growth ahead. For my money, Nvidia is a buy.
Should you invest $1,000 in Nvidia right now?
Before you buy stock in Nvidia, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $869,885!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of November 18, 2024
Danny Vena has positions in Nvidia. The Motley Fool has positions in and recommends Intel, Nvidia, and S&P Global. The Motley Fool recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.