Nvidia (NASDAQ:NVDA) has been 2023’s darling of the markets. Yet, some value seekers and contrarians might be worried that NVDA stock is too pricey now. Yet, betting against Nvidia has been a mistake all year long and staying on the long side of the trade is still the smart move in the fourth quarter.
I’m as contrarian as anyone, but I can’t deny that Nvidia’s microchips are in high demand for artificial intelligence (AI) applications. So, I can’t blame analysts and investors for feeling bullish about Nvidia’s future prospects. Like it or not, Nvidia will continue to grow as a business and punish the short sellers in the coming quarters.
The Bear Case Against NVDA Stock
To be fair and balanced, I must address the bearish argument first. First and foremost, Nvidia’s trailing 12-month price-to-earnings (P/E) ratio recently surpassed 100x. That’s going to bother some investors, no doubt.
Yet, some traders will draw the wrong conclusion from this. Traditional valuation metrics, such as a P/E ratio, aren’t great at predicting near-term stock moves.
Nvidia has seemingly been over-valued for most of 2023, but NVDA stock continued to reward investors with outstanding gains. There’s been a sideways consolidation period since June, so maybe the stock just needed to take a breather.
Another bearish consideration is that the U.S. government plans to place further restrictions on Nvidia’s AI chip exports to China. Specifically, a recent report showed the government will block Nvidia’s H800 series chips from being shipped to China.
However, Nvidia Chief Financial Officer Collette Kress already assured in June that (per Reuters) she “doesn’t expect any near-term impact from the expansion of export restrictions to cover the A800 and H800.” In other words, this isn’t a new issue, and there’s no reason to worry about Nvidia suddenly losing significant revenue in 2023’s fourth quarter.
Nvidia Is a True Industry Dominator
It’s rare that I would pinpoint one company as a market dominator, but Nvidia truly fits the bill. As noted in a Reuters report, Citigroup (NYSE:C) analysts “continue to expect Nvidia to maintain ~90% share in the AI GPU market for the next 2-3 years.”
Thus, it’s hard to claim that NVDA stock is overpriced. Nvidia is likely to corner the AI chip industry for the foreseeable future. That’s why the value of the company and its stock are expected to grow in the coming quarters.
That helps to explain why Bank of America (NYSE:BAC) analyst Vivek Arya maintains a $650 price target on Nvidia shares. As Arya explains, “Generative AI requires data center scale compute optimization.” Furthermore, Nvidia’s whole-systems approach “stands in contrast to the narrow silicon-only approach of its rivals.”
Plus, Nvidia has the capacity to release new AI-compatible chips at a brisk pace, possibly even annually. Hence, Arya refers to Nvidia’s “accelerated launch cadence” which, among other factors, “can continue to make it more challenging for merchant competitors to catch-up.”
NVDA Stock: Position Yourself Now for Gains Later On
Like it or not, Nvidia can remain a darling of the financial markets for a long time. Besides, as long as the demand for AI-compatible hardware persists, Nvidia can continue to grow its business.
Therefore, don’t be too concerned about Nvidia’s valuation according to traditional metrics. Despite the protests from the skeptics, NVDA stock is likely to reach $650 a year from now. So, consider taking a share position in Nvidia sooner rather than later.
On the date of publication, David Moadel did not hold (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.
