Nvidia stock was gaining Wednesday after closing at an all-time high the previous session. Investors are weighing whether its momentum can continue, but analysts at Melius Research say the chip maker’s shares might still be a bargain.
Nvidia
(ticker: NVDA) shares were up 0.8% in early trading on Wednesday at $491.71, after closing at a record $487.84 on Tuesday.
Nvidia stock has had a stunning year already, but its current valuation and prospects should reassure investors going into the end of 2023, said Melius’ Ben Reitzes. He has a Buy rating on the stock and a price target of $730, implying a 50% upside from Tuesday’s close.
Nvidia trades at a price-to-earnings multiple of around 28 times its expected 2024 earnings, based on Monday’s closing price—only a modest premium to the 23 times average for a basket of artificial-intelligence-related stocks, according to Melius. Nvidia’s price-to-earnings ratio climbed to 29 times expected 2024 earnings Tuesday, according to FactSet data.
“On a growth-adjusted basis for CY24, Nvidia is “cheaper” than
Alphabet,
Microsoft
and
Apple,
” Reitzes wrote.
Conversations with investors have pointed to some concerns about whether the growth of artificial intelligence—which has powered Nvidia’s stock—is forming a bubble, and if supply and demand for chips is beginning to equalize, according to the Melius analyst.
However, Nvidia looks to be laying the groundwork to warrant its current multiple in the long term as it builds a software ecosystem and recurring cloud services on top of its hardware, according to Reitzes. That’s topped up with its $25 billion share buyback, which could also serve to support the stock.
Write to Adam Clark at [email protected]
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