Two weeks into 2024 and it is Nvidia Corporation (NASDAQ:NVDA) that is the standout stock.
After a prolonged period hovering around US$500 (A$747) per share, the standout performer of the S&P 500 in 2023 has now confidently breached new records, registering more than a 7% increase to start the new year.
With a market value exceeding US$1.3 trillion, Nvidia is rapidly closing the $250 billion gap with Amazon (NASDAQ:AMZN), which holds the fourth-most valuable position in the benchmark.
The continued surge in Nvidia's stock, following a more than threefold increase in 2023, underscores the demand for its artificial intelligence computing chips. The company's revenues skyrocketed by 206% in the third quarter, with projections indicating a 232% rise in the fourth quarter, according to Bloomberg.
Silvant Capital Management chief investment officer Michael Sansoterra acknowledged Nvidia's dominance in a significantly expanding market.
“This is a very large, fast-growing market and they’re dominating,” Sansoterra said.
“You could look forward to 2024 as another solid year of returns for Nvidia.”
Nvidia adapts
Amid challenges, including the Biden administration's restrictions on chip exports to China, which previously comprised 21% of Nvidia's sales, the company has adapted by developing less advanced versions of its PC graphics chips. New data centre chips are anticipated this year.
Moreover, Nvidia recently announced three innovative desktop graphics chips that enhance AI capabilities on personal computers.
Nvidia's financial performance, with profits anticipated to reach nearly US$28 billion in the current fiscal year, has played a crucial role in balancing its valuation in light of the company's rapidly increasing stock price.
Despite this surge, the company's valuation has decreased to approximately 27 times its projected profits, a significant reduction from 55 times recorded in May. However, this valuation remains relatively high, especially when compared to the Nasdaq 100 index, which is valued at around 24 times forward earnings.
A closer examination of Nvidia’s stock price in relation to its historical performance reveals a steeper valuation.
On a trailing basis, Nvidia’s stock is priced at about 68 times profit, which is notably higher than the Nasdaq 100’s valuation of around 33 times. This comparison highlights the premium placed on Nvidia’s shares in the market, reflecting investor expectations of continued strong performance from the company.
Banrion Capital Management CEO Shana Sissel still favours Nvidia, citing its relative valuation and revenue growth. While not expecting a repeat of 2023's exceptional performance, Wall Street's average price target for Nvidia suggests a potential 22% gain, offering one of the widest margins among major US tech companies.
Sissel maintains a positive outlook for Nvidia, deeming it a worthy investment for outperforming the market this year.