Nvidia Is Still a ‘Buy’ on Wall Street as Analysts Race to Boost Price Targets
Summary
- Graphics chip maker has gained more than $650 billion in market value since October
An investor craze for artificial intelligence has powered Nvidia’s dizzying rise and pushed the stock to lofty valuations. Wall Street analysts are predicting it has more room to run.
Nvidia shares have nearly tripled in 2023, making them the best performers by far in the S&P 500. The graphics chip maker has gained more than $650 billion in market value since hitting a two-year low in October and briefly crossed the $1 trillion mark earlier this week.
Enthusiasm for Nvidia among stock pickers has only grown as investors have piled in. Of the 49 analysts surveyed by FactSet, 41 have a buy rating on the stock. That is up from 30 in October.
Their average 12-month price target on the stock falls just below $436, which implies gains of about 11% from Friday’s close of $393.27. Price targets typically shift as analysts update their business forecasts.
Nvidia’s surge picked up steam after the chip maker unveiled a blockbuster revenue target on May 24 for the quarter ending in July. The company expects to book $11 billion in sales, while the consensus forecast had called for roughly $7 billion.
The company “just did something that a lot of people, reflexively, don’t know how to explain," said Hans Mosesmann, managing director at Rosenblatt Securities. He rates the stock “buy" and has a $600 price target, the highest on Wall Street.
That has helped spark a rally throughout the chip industry. The PHLX Semiconductor Sector Index, home to 30 stocks, has advanced 38% in 2023.
Nvidia’s rise contrasts with much of the broader market. Six of the 11 sectors of the S&P 500 are down this year. Yet the benchmark is up 11.5%, largely powered by the gains in a handful of big technology stocks. That raises the question of whether the rally will fizzle out or kick off a new bull market.
The AI craze has been building since Microsoft announced a $10 billion investment in ChatGPT developer OpenAI in January. Other large technology companies are also spending large sums to develop their own artificial intelligence programs. Nvidia, which sells graphics processing units, or GPUs, needed to power such programs, is currently the only viable supplier, analysts said.
The result has been an arms race that has propelled Nvidia’s business more quickly than even bulls had expected. Nvidia has been able to double prices because of overwhelming demand, Mosesmann said.
Skeptics on the stock are questioning its current valuation, even as they agree Nvidia is in a strong competitive position. The stock now trades at 48 times forward earnings, up from 27 times last fall. The S&P 500, in comparison, is trading at 19 times earnings.
“We absolutely think Nvidia’s the best-positioned semiconductor company," said Ruben Roy, managing director at investment bank Stifel. “What do you pay for that? That’s where we have a bit of an issue." Roy has a hold rating on the stock and a price target of $370.
Nvidia still scores highly compared with other semiconductor stocks. About 85% of analysts surveyed by FactSet recommend shares of Broadcom, while 64% of analysts recommend shares of Advanced Micro Devices. About one-fifth have a favorable opinion of Intel, which is in the midst of a turnaround effort.
Yet Nvidia has only provided an outlook for the second quarter, leaving some uncertainty that the blowout quarter truly represents the new normal.
“The question is to what extent is the guidance a pull-in effect or a reset higher?" said Angelo Zino, senior analyst at CFRA, with a $415 price target on the stock.
Wall Street forecasts assume Nvidia’s business will keep growing. Analysts have penciled in $12 billion in quarterly revenue on average, by the fiscal fourth quarter, which ends in January. That sum is projected to reach $14 billion by the fall of 2024.
Some analysts said a high backlog of demand for chips makes revenue growth in the coming quarters easier to forecast, despite the lack of guidance beyond July.
“If you order a GPU today, you’re not getting it for a year," said C.J. Muse, senior managing director at Evercore ISI, who has a $500 price target on the stock. “It’s a really shrewd strategy to own the moat."
Write to Charley Grant at charles.grant@wsj.com
