After rising 194% over the past 12 months, Nvidia (NASDAQ: NVDA) The stock has richly rewarded its short-term investors as it faces a wave of explosive demand for artificial devices. But until now, this industry has been more noise than substance and Wall Street is starting to take notice. Let’s dig deeper into what the coming year might hold for Nvidia as the hype fades and the fundamentals come into play. bigger role.
Analysts are starting to sound the alarm
In late 2022 and early 2023, the financial media was abuzz with grandiose visions of the future of AI. PwC expected it to add $15.7 trillion to the global economy by 2030. And Bloomberg Intelligence predicted the market would be worth $1.3 trillion by 2032 as new technology was applied for digital advertising, software development and other services. But now, some on Wall Street are starting to sing a different tune.
In June, Goldman Sachs released a report suggesting that roughly $1 trillion in capital spending (capex) expected to be poured into AI hardware over the next few years may outpace potential returns. And they have a point.
So far, most consumer-facing AI startups are generating significant losses. And for the longer term, free, open source language patterns (LLMs) can also commodify technology, eroding the economic gap for early leaders. it it would hurt Nvidia because if its software customers don’t benefit from their AI investments, eventually, they will stop spending. But so far, there is no evidence of a slowdown.
The cracks have not yet appeared
The good news for Nvidia shareholders is that whether The company is facing an impending doom, there are no signs of it yet. The chipmaker’s rocket rally is still supported by outstanding operational performance.
Second-quarter revenue doubled year-over-year to $13.51 billion, driven by a 171% increase in the data center segment where Nvidia sells its top-end graphics processing units (GPU), such as the H100 and A100 that are used to train and run AI algorithms. Right now, supply seems to be outstripping demand. And the company’s gross margin rose from 64.6% to 70.1%, while its profits rose 843% to $6.19 billion.
That said, the AI boom is getting a bit long in the tooth. Over the next 12 months, Nvidia will face difficult complications as it tries to maintain growth against last year’s already high numbers. it could hurt the stock’s valuation, which appears to be pricing in continued expansion. With one forward price-to-earnings Ratio (P/E) of 49, Nvidia trades at a significant premium over Nasdaq 100S ‘ future estimate of about 30.
Is it a buyout of Nvidia stock?
It might be tempting to bet on Nvidia because of its practically exponential share price growth and recent 10-to-1 stock split that makes the $3.18 billion company look deceptively affordable. However, investors who buy now are too late to the party and risk holding the bag if things go wrong.
Over the next 12 months and beyond, the AI industry may face a reckoning as the hype begins to fade and consumer-facing applications struggle to show enough revenue and profit potential to justify the industry’s spending on chips and other devices. These challenges could put Nvidia’s valuation at risk. And investors may want to steer clear for now.
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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Nvidia. The Motley Fool has a disclosure policy.
Where will Nvidia stock be in 1 year? was originally published by The Motley Fool