After releasing some blockbuster results yesterday (21 February), the Nvidia (NASDAQ:NVDA) share price has again rocketed higher. The stock has jumped by 225% over the past year, as the demand related to artificial intelligence (AI) has taken off. Yet for an investor like me that hasn’t bought the stock yet, is there still potential for it to go higher?
Why Nvidia is the hot stock right now
Before I get onto the share price forecasts from some of the top analysts, it’s important to understand why the growth stock has rallied so much over the past year.
The main driver comes from the H100 graphic card accelerator. This is a key component for any business looking to build on AI, as the technology behind the card enables it to process heavy workloads.
Large companies are buying this, along with other related hardware and software, from Nvidia. The business has been around since 1993, but the rapid rise in AI has meant that it’s only over the past year or so that things have taken off.
An incredible statistic following the latest earnings is that for Q4 ’23, revenue hit $22.1bn. This was more that it generated for the whole year in 2021!
Looking at share price targets
The stock closed yesterday at $674, although it’s expected to open today around 9% higher following the release of the results after the market closed.
Several of the major bank research teams have put out forecasts indicating that a further move higher could be on the cards. For example, the HSBC price target is $880, with Goldman Sachs at $875 and JP Morgan at $850.
In fact, the lowest price target from a major bank that I can see is Morgan Stanley with $795. All of these figures are price forecasts for the next 12 months.
Clearly, given the current share price, the experts feel that we haven’t reached the peak yet.
Throwing my hat in the ring
Although I’m not going to pin an exact price forecast on the stock, I agree that it can go higher from here. A key factor in my view is the forward price-to-earnings ratio. This uses the 12 month forecasted earnings per share and compares it to the current share price.
For Nvidia, this sits at 40 right now. When I compare this to tech peers, this isn’t expensive. Considering that it’s the hot stock of the moment and has jumped by 225%, I’d argue that it’s lower than I expected!
The last time I can remember such a buzz around a stock that was rocketing higher, it was Tesla a couple of years ago. I remember writing about it at the time when the P/E ratio was above 200. That should put things in perspective.
Bringing it all together, it’s clear that the experts (and my humble self) agree that Nvidia can keep going. Of course, there’s the risk that other competitors catch up and take valuable market share away going forward. Further, even the top analysts do get things wrong, with forecasts not being in any way a guarantee of the future. Yet based on the growth trajectory, it doesn’t appear the party is over.
