Nvidia delivered monster returns over the past 18 months, but some analysts see more upside for shareholders.
Nvidia (NVDA 4.57%) stocks have literally driven the stock market higher. Since January 2023, the stock has advanced 740% due to enthusiasm for artificial intelligence. of S&P 500 returned 44% over the same period. Put another way, Nvidia accounted for roughly one-fifth of the gains in the S&P 500 over the past 18 months.
Nvidia restored its rising stock price with a 10-for-1 stock split in June, its second split in three years. Shares have since traded sideways, but Wall Street remains bullish. Nvidia carries an average price target of $136 per share, implying 11% upside from the current price of $122 per share.
The highest price target comes from Hans Mosesmann at Rosenblatt, who believes Nvidia will grow 64% to reach $200 per share by June 2025. The lowest price target comes from Gil Luria at DA Davidson, who believes Nvidia will fall 26% to reach $90 per share over the same period.
Read on to learn more.
Nvidia has a significant competitive advantage in its supporting software ecosystem
Nvidia’s graphics processing units (GPUs) excel at accelerating complex data center workloads such as artificial intelligence (AI). The company consistently sets performance records in MLPerf benchmarks and objective tests for AI technologies, and holds more than 80% market share in AI chips. But Nvidia is truly formidable because it has reinforced its dominance in AI chips with an ever-expanding ecosystem of supporting software.
Nvidia introduced the CUDA programming model in 2006, a software layer that allowed its GPUs (originally designed for computer graphics) to function as general-purpose data center processors. “Millions of lines of code have been written over the years for CUDA that have made it easier to develop new AI applications while using Nvidia chips,” according to Wall Street Journal.
Nvidia recently introduced AI Enterprise, a set of pre-trained software models and tools that simplify the development and deployment of AI applications across a wide range of use cases. For example, the AI Enterprise suite includes frameworks for recommender systems, logistics route optimization, chat assistants, cyber security threat detection, and autonomous robots.
Rosenblatt analyst Hans Mosesmann sees this as an important competitive advantage. “The real narrative lies in the software that complements all the goodness of the hardware,” Mosesmann recently told clients. “We anticipate that this aspect of software will grow significantly over the next decade in terms of the overall sales mix.”
On the other hand, DA Davidson analyst Gil Luria is concerned that Nvidia derives most of its revenue from Amazon, Alphabet, MicrosoftAND Tesla. These four companies are developing their own AI chips to displace Nvidia GPUs. Luria thinks competition will be problematic, saying, “Looking beyond the next four to six quarters, we believe a decline in Nvidia PC demand is inevitable.”
Both analysts make valid points, but the argument made by Mosesmann seems to trump the concerns raised by Luria. Competitors are indeed building custom AI chips, but history suggests they’ll need a comparable software ecosystem to really displace Nvidia. For example, Alphabet has been using custom AI chips called Tensor Processing Units (TPUs) for nearly a decade. But Nvidia GPUs remain the gold standard.
Indeed, Toshiya Hari in the Goldman Sachs doesn’t worry about competition. “We believe Nvidia will remain the de facto industry standard for the foreseeable future given its competitive advantage spanning hardware and software capabilities,” he wrote in a note to clients. “Nvidia’s annual adoption of new products and platforms sets a pace of innovation that keeps it at the forefront of the industry.”
Wall Street has high expectations for Nvidia’s revenue and earnings growth
Nvidia reported outstanding financial results in the first quarter of fiscal year 2025 (ended April 28, 2024). Revenue rose 262% to $26 billion and non-GAAP net income rose 462% to $15.2 billion. CEO Jensen Huang said the growth was “fueled by strong and accelerating demand for generative AI training and inference solutions.”
What makes Nvidia’s first-quarter performance particularly impressive is that it comes on top of triple-digit growth in the previous three quarters, as shown in the chart below.
Nvidia’s net income and non-GAAP income have grown at a triple-digit pace for four consecutive quarters.
Going forward, Wall Street analysts have high expectations for Nvidia. The chart below shows consensus revenue and non-GAAP net income estimates over the next five quarters.
Wall Street expects Nvidia to quickly grow revenue and non-GAAP net income over the next five quarters.
Nvidia stock trades at a tolerable valuation compared to Wall Street earnings estimates
I mentioned earlier that Nvidia stock has gained 740% since the beginning of January 2023. After this price estimate, investors can assume that Nvidia is overvalued. But shares currently trade at 72 times earnings, a discount from the three-year average of 87 times earnings and the five-year average of 80 times earnings.
Additionally, Wall Street expects Nvidia to grow earnings per share by 33% annually over the next three to five years. This makes the current rating seem tolerable. Investors should not fool themselves into thinking that stocks are cheap. But Nvidia remains one of the best ways for patient investors to expose their portfolios to AI, a market forecast to grow 36% annually through 2030.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon, Nvidia and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Goldman Sachs Group, Microsoft, Nvidia and Tesla. The Motley Fool recommends the following options: long January 2026 $395 Microsoft calls and short January 2026 $405 Microsoft calls. The Motley Fool has a disclosure policy.