NvidiaS ‘ (NVDA -1.89%) the stock rose a dramatic 500% in the past three years. Arguably, much of this recent rally has been driven by the company’s position as a key beneficiary and enabler of the ongoing wave of artificial intelligence (AI).
Nvidia offers a complete AI platform consisting of AI-optimized hardware chips, a complete software ecosystem, high-speed networking solutions and servers to enable customers to build “AI factories” or core infrastructure for AI. outputs (text, images, audio, video). The company’s accelerated product release cadence, from two years to one year, also helps it maintain a technological edge over the competition.
Furthermore, in addition to the increasing demand from large high-scale companies, enterprises and artificial intelligence start-ups, Nvidia’s AI-optimized hardware and software solutions are now increasingly used in new fields such as AI Sovereign (governments building in-house AI capabilities), automotive verticals and robotics business.
The power of artificial intelligence drove Nvidia shares to an all-time high of over $1,200 in early June. The recently executed 10-for-1 stock split made its stock much more accessible to retail investors.
With Nvidia stock now around $124 at this writing, long-term investors may be keen to know if the stock can bounce back to the $1,000-plus levels. Let’s analyze the company’s fundamentals and valuations to find some answers.
Intensification of competition and supply challenges
Nvidia’s technological superiority in the development of AI-optimized hardware and software enabled the company to capture a whopping 90% share of the global AI chip market. However, the company’s stronghold may be challenged in the long run. Although currently far behind Nvidia, competitors Advanced Micro Devices AND Intel are working hard to capture a piece of the AI market.
AMD’s MI300 family of data center chips witnessed strong demand, while the company is also gearing up to launch AI chip families such as the MI325 and MI350 accelerators, based on advanced architectures, in the coming months. AMD expects these chips to demonstrate faster performance, improved memory capacity and stronger computing capabilities for AI workloads.
Intel is also aggressively focusing on the possibility of AI PCs and hopes to launch Lunar Lake laptop CPUs by September 2024. The Lunar Lake chips are expected to be superior in performance, efficiency and graphics processing compared to its chips predecessor Meteor Lake. Plus, Intel has also introduced Gaudi 3 AI accelerators, providing superior cost-performance benefits for training and mining AI models.
Nvidia also faces the risk of customers such as cloud players and tech giants becoming competitors as it has accelerated in-house development of AI-optimized chips and solutions. This risk cannot be ignored, as the big cloud players account for roughly 45% of the company’s data center revenue.
Many other challenges
While demand for Nvidia’s chips and AI solutions has grown dramatically, the company continues to face supply constraints related to procuring manufacturing, testing and packaging capacity from Semiconductor manufacturing in Taiwan and other vendors. The company then expects demand for its new H200 chips and next-generation Blackwell chips to exceed supply by 2025. This headwind could affect the company’s growth prospects in the coming years.
Nvidia also accelerated the pace of its release cadence (for major products or features) from once every two years to once a year. Continuous hardware and software innovation and adaptation is the need of the hour in the face of increasing complexity and rapid evolution of AI models and workloads.
However, this also exposes Nvidia to significant execution risks and the risk of customers delaying purchases to gain access to cutting-edge technologies. Nvidia’s rapid pace of innovation could result in early product obsolescence for its older offerings and increased risk of self-cannibalization.
Evaluation ratings
Nvidia has consistently posted impressive financial metrics for the past several quarters. In the first quarter of fiscal 2025 (ending April 28), revenue grew nearly 262% year-over-year to $26 billion, while net income rose 628% year-over-year to $14.9 billion .
Analysts expect Nvidia’s fiscal 2025 sales to grow 97% year over year to $120 billion. While the rate of revenue growth is expected to moderate in the next decade, analysts expect the company’s sales to triple to $380.9 billion by 2034.
Nvidia is currently trading at a price-to-sales (P/S) multiple of 38.6x. Assuming this multiple returns to its 10-year average of 22.27x (a conservative estimate), we can expect Nvidia’s market cap to reach around $8.5 trillion by 2034. While the market cap looks large , is just 2.7 times the company’s current $3.1 trillion market capitalization. This implies that the stock could reach north of $340 by 2034 (assuming there are no significant share repurchases or stock splits).
Assuming Nvidia’s P/S multiple remains at its current 38.6x (a very aggressive estimate), the company’s market cap will be around $14.7 trillion — 4.7 times its current market cap. However, the company’s stock price can be expected to reach close to $600 by the end of 2034.
Therefore, based on current valuations, the chances of Nvidia’s share price exceeding $1,000 in the next decade seem slim. However, these predictions could change if Nvidia makes even more dramatic advances in AI technologies in the coming years.