There aren’t any surprises in my Nvidia (NASDAQ:NVDA) stock forecast. It was one of the best-performing names of 2023, with a staggering gain of more than 240% and this year is off to a good start with shares up more than 33%
Nvidia has been riding high on the booming demand for its artificial intelligence solutions, and it seems like the company could continue to do for the foreseeable future, despite claims that the AI “craze” may be blown out of proportion. Below are three reasons why I forecast NVDA’s shares to rise above $700 in February.
A NVDA Stock Forecast: The AI Factor
Nvidia dominates in both gaming GPUs and AI chips. Nvidia dominates about 81% of the market for AI chips used in cloud and data centers. Nvidia’s TensorRT software enables fast and efficient inference of AI models on edge devices.
Despite many Wall Street analysts now saying the AI “craze” is overblown, businesses in both the United States and elsewhere will probably not temper their demand for these kinds of computing products. Sure, there are businesses certainly playing into the hype of AI to sell certain “AI-enhanced” products, but that still guarantees there will be demand for the chips that make these products work.
Nvidia announced a $1 billion deal to provide India-based companies with its AI chips. This is likely just the beginning of the effect these chips will have on the international stage.
Chip Demand to Increase in 2024
To have a sense of chip demand, the Taiwan Semiconductor Manufacturing Company (NYSE:TSM) and its business outlook is a great indicator. TSMC is behind the manufacturing of advanced silicon from Nvidia and its competitors, and the contract chip manufacturing has consecutively provided the market with positive news.
Last year, in their Q3 earnings report, TSM not only boosted revenue guidance but also predicted the “chip slump” was coming to an end. Similarly, in January, CEO C.C. Wei mentioned the company would return to growth in 2024 due to an overwhelming demand for AI chips, definitively marking the bottom of the chip maker slump.
Nvidia will undoubtedly benefit from this demand TSMC’s foresees, and the company will also be a beneficiary of the ending chip slump.
While Nvidia’s P/E multiple is high, it’s not stretched thin
Nvidia’s stock is trading at a record high, but its forward P/E ratio is well below where it was 12 months ago. Then, the stock was trading at over 54.2x forward earnings. Nowadays, the chip maker’s stock trades for just 33.8x forward earnings. During the height of the AI craze in 2023, Nvidia’s multiple went as a high as 69.7x forward earnings.
That’s all to say, despite Nvidia’s valuation looking expensive, it is much less than it was in prior months. Given the extent to which Nvidia could profit from businesses adopting AI solutions, the chipmaker’s current multiple is likely justified.
On the date of publication, Tyrik Torres 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.
