Nvidia (NVDA) stock soared about 239% in 2023. This upward trend was primarily fueled by the stellar demand for its accelerated computing platform. The ongoing expansion of the NVIDIA HGX platform, based on the Hopper Tensor Core Graphics Processing Unit (GPU) architecture and InfiniBand end-to-end networking, played a pivotal role in generating record-breaking revenue for the company and driving its stock higher throughout the year.
Notably, the NVIDIA HGX, in conjunction with InfiniBand, stands as the quintessential reference architecture for artificial intelligence (AI) supercomputers and data center infrastructures. Many cutting-edge generative AI applications, including ChatGPT, Microsoft (MSFT) 365 Copilot, CoAssist, ServiceNow (NOW), and Adobe (ADBE) Firefly, rely on NVIDIA technology for their development and operation.
Consequently, Nvidia's Data Center compute revenue rose more than four times from the previous year, and networking revenue nearly tripled in Q3 of the current fiscal year. Consumer Internet companies and enterprises were major contributors, constituting approximately half of the Data Center revenue and outpacing the overall growth rate.
While Nvidia stock witnessed massive growth in 2023, it raised concerns about valuation. Additionally, there are apprehensions that Data Center revenue might peak in 2024, compounded by challenging year-over-year comparisons that could impact growth rates in the upcoming quarters. Furthermore, the introduction of new export control regulations for China and other markets adds another layer of challenges.
Nvidia disclosed that sales to China and other affected destinations, now subject to licensing requirements, have consistently contributed 20% to 25% of Data Center revenue in recent quarters. During the Q3 conference call, Nvidia anticipated a significant decline in sales to these destinations in the fourth quarter.
Given these uncertainties, questions arise about the sustainability of the rally in Nvidia stock in 2024. Nevertheless, significant investments in infrastructure to support the training and inferencing of large language models and generative AI applications have triggered a widespread demand for Nvidia's accelerated computing. This solidifies Nvidia’s bull case.
In light of these factors, let's examine the indicators suggesting that Nvidia stock could continue its upward trajectory in 2024.
Nvidia’s Bull Case
Nvidia holds a dominant position in the AI sector, commanding a significant market share. Moreover, its GPUs are the preferred choice in the market. Recently, the company introduced its H200 AI chips, which are equipped with advanced memory to handle large volumes of data efficiently for generative AI and high-performance computing workloads. This underscores Nvidia's commitment to continuous technological advancements, reinforcing its leading position in the market.
Nvidia's management has provided assurance to address concerns about a potential growth slowdown. The company anticipates continued growth in its Data Center revenue until 2025, driven by the growing adoption of generative AI across various industries. Nvidia is successfully attracting new customers from diverse regions worldwide, further solidifying its market leadership.
Looking ahead, Nvidia sees significant long-term opportunities led by data center systems, autonomous vehicles and robotics, gaming, and industrial digitalization. The broader and faster product launch to address the growing and diverse AI opportunities will continue to drive Nvidia’s data center revenues.
Furthermore, Nvidia is a leader in PC gaming. The rising adoption of NVIDIA RTX in games, expected increase in sales of gaming laptops, and integration of generative AI on PCs will likely support growth in the gaming segment, which accounted for about 33% of its FY23 total revenues.
The company is also the leader in workstation graphics and commands a dominant market share. Its robust software ecosystem with over 100 RTX accelerated and supported applications, hybrid work environment, and integration of AI are likely to fuel future growth. Moreover, NVIDIA DRIVE, its end-to-end autonomous vehicle (AV) and AI cockpit platform, will drive its market share in the automotive market.
The Bottom Line on NVDA
Nvidia’s solid revenue growth, high gross margins, and strong cash flow generation position it well to return cash to its shareholders via share buybacks. It repurchased shares worth $10 billion in FY23. Moreover, it bought back shares worth $3.8 billion in the third quarter of the current fiscal year. Further, the company has a solid balance sheet with $8.5 billion in net cash.
What stands out is that AI will likely be the company’s core earnings driver in the coming years, pushing its share price higher. Analysts have a bullish outlook on NVDA stock, too. Among the 36 analysts covering the shares, 30 recommend “Strong Buy.” Three analysts have a “Moderate Buy” rating, and three maintain a “Hold.”
The average 12-month price target for Nvidia stock is $646.54, implying expected upside of about 18% from current levels.
On the date of publication, Sneha Nahata did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
