For months I’ve been looking for an exit as the Nvidia (NASDAQ:NVDA) stock outlook is complex. I haven’t pulled the plug. I’ve been right to sit tight. Nvidia is already up over 45% in 2024. Its market cap passed Amazon‘s (NASDAQ:AMZN) and is rapidly closing in on Alphabet’s (NASDAQ:GOOGL) (NASDAQ:GOOG).
We always see this kind of mania when a new technology emerges. In this case, it’s AI. Nvidia chips and software are essential for current AI applications. The Cloud Czars, like all cloud vendors, are buying Nvidia gear so their customers can create those applications.
The NVDA Stock Outlook for 2024
Nvidia will report its fourth quarter results on Feb.21. Analysts are expecting the Sun, the Moon, and the stars. They might get it.
That would be revenue of $21.3 billion, and earnings of $4.79 per share. For fiscal year 2025, which starts this month, they’re seeing revenue of $94.5 billion. One analyst even sees $135 billion. That’s still a forward price to sales estimate of 13, but it beats the 30 you’re seeing based on the recent results.
Even at $135 billion in sales, Nvidia stock is above its fundamentals. When Microsoft (NASDAQ:MSFT) released numbers on Jan. 30, it beat all estimates on the strength of its cloud. But the stock still went down to below $400. For those thinking of heading for the hills, Microsoft is now trading at $419.
I have written about the reason for Nvidia’s dominance many times. It’s about the software, not the hardware. Its Cuda toolkit is as vital to many developers as Microsoft Windows was to their mothers, and as IBM (NYSE:IBM) software was to their grandfathers.
The Coming Cliff
My NVDA stock outlook says the equity will fall. When, how, and how far are the questions. Traders might want to sell before earnings on Feb. 21, betting the stock drops regardless of the numbers. But investors may want to take that loss, betting that, as with Microsoft, we’ll get it back quickly.
A more fundamental break might be an unexpected change. If ZLUDA, which lets Advanced Micro Devices (NASDAQ:AMD) hardware run CUDA software, gets going in the market, that could be the start of that change.
The other key point to look for is the inevitable “trough of disillusionment” that hits every new technology. The reality of the Internet changing everything didn’t stop the 2000 dot-bomb.
Expectations for AI are sky high because early results from it look very good. At some point, however, reality falls behind expectations and you get a collapse.
This could happen once investors see just how hard it is to build a profitable AI application. Tech companies have tried to hint at this by conducting layoffs and by nickel-and-diming customers with additional charges and higher prices.
A corporation can get value by using its own data warehouse as training data, and by focusing on improved operations. But not all managements will get this right. When they get it wrong, they’ll blame the tools, and stocks will fall. You want to be out before then.
A Final Warning
You can be right on a stock and wrong on your timing, even as a long-term investor.
That happened to me with Moderna (NASDAQ:MRNA). I touted it at its IPO and urged investors to take profits when its COVID vaccine proved effective.
I just didn’t take my own advice. I never got completely out. While I’m certain of Messenger RNA’s importance in medicine, Moderna’s COVID boost is over, and sales are down by half. I’m now left betting on new discoveries from its remaining $7.5 billion of cash and investments.
As of this writing, Dana Blankenhorn had LONG positions in GOOGL, MSFT, AMZN, AMD, MRNA and NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
