The “Magnificent Seven” group of stocks delivered a stellar performance in 2023, outperforming both the Nasdaq Composite and the S&P 500. None excelled more than Nvidia (NASDAQ: NVDA), the chipmaker that has established itself as the forerunner in the artificial intelligence (AI) revolution. During the year, Nvidia’s stock surged by 239%, fueled by substantial revenue and profit growth.
Nvidia emerged as the early winner in the generative AI boom, witnessing a staggering 206% revenue increase in the third quarter compared to the previous year. The high demand for its graphics processing units (GPUs) and accelerators resulted in significant profitability, with net income on a GAAP basis spiking more than 13-fold from $680 million to $9.24 billion. The stock, paradoxically, appears more attractively valued than before, trading at a price-to-earnings ratio of 26 based on fiscal year 2025 estimates.
Analysts are optimistic about Nvidia’s future, with the average Wall Street projection anticipating a further 20% rise in 2024, backed by 36 analysts unanimously betting on a gain. Additionally, 32 analysts have rated the stock as a buy, with four assigning a hold. This intensified bullish sentiment is not unwarranted, as Nvidia showcases the potential to sustain its upward trajectory.
Image source: Getty Images.
Nvidia’s Upward Trajectory
Nvidia’s recent product release at the CES trade show underscores its potential for continued growth. The company’s announcement of new products and partnerships across various chip categories and industries reaffirms its steadfast commitment to AI dominance.
For instance, Nvidia unveiled a new series of GeForce RTX 40 Super GPUs, aimed at enhancing gaming and generative AI performance, along with securing partnerships with gaming titans like Ubisoft and Tencent for its new Nvidia Ace AI game-making tool.
Getty Images, a major stock photo database, declared the launch of a new generative AI service powered by Nvidia Picasso, catering to visual design. Nvidia’s technology enables the creation of 4K imagery from text, leveraging an AI model trained on Getty Images’ extensive photo catalog.
Furthermore, biotech company Amgen is leveraging Nvidia’s DGX SuperPOD to expedite drug discovery and development through state-of-the-art model training. The diversity of applications for Nvidia’s chips underscores their potential reach across numerous industries, from retail to biotechnology.
Moreover, Nvidia has positioned itself to challenge Intel with three new AI PC chips, countering a company expected to pose a significant challenge in the AI space.
The Potential of Nvidia: A Stock Worth Consideration
Nvidia’s Growing Role in Generative AI
Amid a series of flashy announcements at CES and dire comments from influential companies like Oracle and OpenAI about an acute scarcity of AI components (with Nvidia at the helm), it’s clear that the generative AI revolution is only gaining momentum.
An Attractive Buy?
With Nvidia’s stock trading at a P/E ratio in line with the broader market, based on future year earnings, one could argue that the stock is a compelling buy at the moment.
Moreover, if the prevalence of generative AI remains as widely acknowledged as it is today, there could still be ample room for Nvidia’s stock to climb higher.
Considering the Investment
Before taking the leap and investing in Nvidia, it’s essential to weigh the following:
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Equally worth noting, an author from Motley Fool, Jeremy Bowman, disclosed that he currently holds no position in any of the stocks mentioned. The Motley Fool has stakes in and endorses Nvidia, Oracle, and Tencent. Additionally, the Motley Fool recommends Amgen and Intel, as well as the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short February 2024 $47 calls on Intel. The Motley Fool also maintains a clear disclosure policy.