It’s an understatement to say that Nvidia (NASDAQ:NVDA) stock knocked it out of the park in 2023. With rising uncertainty, more investors are taking profits, causing this “Magnificent Seven” component to pull back in recent weeks. This price trend could carry on into 2024.
Cashing out of Nvidia is trendy, but going against the grain has merit. Considering several factors, NVDA could deliver above-average performance in the next twelve months. With this in mind, read on as I explain why.
NVDA Stock: Why Enthusiasm is Sliding for This AI Chip Winner
Nvidia is far and away the leading supplier of chips for the generative artificial intelligence market. Booming demand for these chips has resulted in sales rising by triple-digits on a year-over-year basis, with sequential sales growth set to keep rising by a double-digit pace.
Earnings have increased by an even greater extent. Analysts forecast Nvidia’s earnings this fiscal year (ending January 2024) to rise nearly sevenfold compared to FY2023. So then, instead of having continued enthusiasm for NVDA stock, why is the excitement simmering down? Two uncertainties keep weighing on shares.
The first concern is uncertainty surrounding interest rates. If the Federal Reserve lowers rates next year, that’s good news for both chip demand, and for Nvidia’s valuation. However, if rates remain at elevated levels, this could slow down a rebound in non-AI chip demand, affect future AI-related chip sales growth, and limit the extent in which NVDA’s earnings multiple could re-expand.
Second, there’s still uncertainty over future sales of AI chips to the Chinese market. Nvidia CEO Jensen Huang is touting that the company has found a workaround to the U.S. Government’s export controls, but it’s still questionable how much this will minimize the impact of this crackdown.
Still, Shares Could Again Outperform During 2024
To the skeptics, investors this year overestimated how much the generative AI mega-trend would positively affect Nvidia’s future growth, sending NVDA stock too far, too soon. In their view, the stock’s sideways performance since the summer is a prelude to far less stellar returns during 2024.
Admittedly, there were plenty of lower-quality AI stocks boosted by the “mania” surrounding this trend. The bubble surrounding them is clearly deflating, which points to further declines ahead. However, while the bears may place NVDA into this category, I wouldn’t.
While Chinese AI chip sales are still at risk of taking a severe hit, strong demand from other end-users remains likely to outweigh this headwind.
As I’ve pointed out before, I’m not the only one holding this view. Per Wedbush’s Dan Ives, “use cases are exploding” for AI chips, leading the tech analyst to conclude “China worries were overblown and I think contained.”
Hence, Nvidia is well-positioned to report growth in line with current expectations, including another big jump in earnings, from $12.16 to $20.60 per share. Taking this into account, NVDA still has a strong chance of experiencing another high double-digit rise in price next year.
Seize the Opportunity: Feel Free to Buy the Pullback
Sure, my bull case for NVDA, besides hinging on continued high sales growth, hinges too on the stock maintaining a valuation in line with its current multiple (around 37 times estimated FY24 earnings).
Even as continued high interest rates bodes badly for growth stocks, I just don’t see the market significantly re-rating Nvidia to the downside.
Besides, NVDA right now trades at a discount to its key rival, Advanced Micro Devices (NASDAQ:AMD). While I’m far from bearish on AMD stock, it does trade for a higher forward multiple (44 times earnings), and it’s still a distant second to Nvidia in the AI chips space.
As merely hitting earnings forecasts and maintaining its current valuation may be all it takes to send NVDA stock to $750 per share in 2024, feel free to seize the opportunity, by buying the pullback.
NVDA stock earns an A rating in Portfolio Grader.
On the date of publication, Louis Navellier had a long position in NVDA. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
