Shares of semiconductor manufacturer Nvidia (NASDAQ:NVDA) — which specializes in graphics processing units (GPUs) among other technologies — moved up about 2% late Thursday morning. Following a blowout earnings report for the second quarter, investment firm Rosenblatt liked what it saw. Subsequently, analysts there raised their price target of NVDA stock to $1,100 from $800, raising questions on Wall Street.
Although such a forecast would imply a more than doubling of Nvidia shares’ present price tag, it’s important to consider just how impressive the Q2 print was. According to a CNBC report, the tech giant posted earnings per share (EPS) of $2.70, easily beating the consensus EPS target of $2.09. On the top line, Nvidia rang up $13.51 billion in revenue, also handily beating the consensus target of $11.22 billion.
Further, net income jumped to $6.19 billion, up sharply from the $656 million posted in the year-ago quarter. As if that wasn’t enough, Nvidia’s revenue guidance for the current quarter implies 170% year-over-year growth.
Subsequently, Rosenblatt analyst Hans Mosemann labeled the underlying artificial intelligence growth story as “the mother of all cycles.”
With more companies and industries turning to AI for various efficiency solutions, the GPUs that undergird digital intelligence will likely be in extremely high demand. Thus, Mosemann labels NVDA stock as Rosenblatt’s top conviction idea.
Could NVDA Stock Really Hit Such a Lofty Target?
Although few question the viability of NVDA stock, the stratospheric forecast raises questions. Predominantly, data from Yahoo Finance reveals that shares trade at a trailing earnings multiple of 245.4x and a forward multiple of 60.24x. Both stats ping at an incredibly high level compared to the underlying semiconductor industry.
However, NVDA stock has continued to swing higher based on two main factors: one, the company continues to beat lofty expectations and two, demand for generative AI applications has only increased. As CNBC pointed out, “Nvidia’s A100 and H100 AI chips are needed to build and run AI applications like OpenAI’s ChatGPT and other services that take simple text queries and respond with conversational answers or images.”
While an $1,100 price target for NVDA stock seems awfully aggressive, Nvidia CEO Jensen Huang brought clarity to the thesis. During the Q2 call with analysts, Huang stated the following:
“The world has something along the lines of about a trillion dollars worth of data centers installed, in the cloud, enterprise and otherwise. That trillion dollars of data centers is in the process of transitioning into accelerated computing and generative AI.”
To be sure, with NVDA stock already up almost 240% since the start of the year, another doubling could take a while. Still, $1,100 may not be an unreasonable target given the extraordinary relevancies.
Why It Matters
Presently, TipRanks notes that NVDA stock carries a strong buy consensus view. This assessment breaks down as 39 buys, one hold and zero sells. Further, the analysts’ average price target lands at $617.98, implying nearly 28% upside potential.
On the date of publication, Josh Enomoto 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.
