Over the past two years, the hype surrounding the Artificial Intelligence (AI) boom has led to incredible operational momentum for Nvidia (NASDAQ: NVDA)the company that designs and manufactures most of the chips in the industry. But while business is good, the company’s stock price seems to have hit a roadblock. Let’s discuss why this might be happen and determine whether Nvidia shares could hit $200 before the end of the year.
Nvidia’s rocket rally fades
With shares up around 2,450% over the past five years, Nvidia has been a worthwhile investment for its shareholders over the long to medium term. However, that thesis is starting to fall apart as strong operating results no longer impress the market as much as they once did.
Second-quarter revenue rose 122% year-over-year to $30 billion, driven by huge demand for Nvidia’s data center graphic processing units (GPUs), which help run and train AI algorithms. The company’s bottom line also remains positive, with operating profit up 174% year after year up to $18.6 million. Management expects the release of new AI hardware products based on the faster, more efficient Blackwell architecture to drive customer demand in 2025 and beyond.
Nvidia’s board of directors has also approved a staggering $50 billion value of share buybacks in the quarter, which could strengthen investors’ claim to future profits by increasing the number of outstanding shares.
While these are objectively good results, Nvidia’s adjusted share price has fallen about 10% since the August 28 announcement, suggesting that many market participants believe the operating momentum is unsustainable.
Dark clouds are gathering over the AI ​​industry
There are several reasons why investors might take Nvidia’s current results with a grain of salt. To start, the software side of the consumer-facing generative AI industry is not yet proven its monetization potential. Analysts of Goldman Sachs to worry that current AI systems Ordinary are not designed to solve problems complex enough to justify their cost.
And while the technology behind it large language models (LLMs) like ChatGPT continue to improve, but that doesn’t necessarily mean they will get better. easier to make money from competition from free, open-source rivals such as Meta platforms Llama or Elon Musk’s Grok.
There’s a growing risk that AI could follow the pattern of previous hype cycles like the internet or electric vehicles, where companies overbuilt capacity in anticipation of consumer demand that didn’t quickly materialize. If this happens with generative AI, the market for Nvidia’s expensive data center hardware could stagnate or decline in the near term, even as the technology becomes widely adopted in the coming decades.
Nvidia’s uncertain path to $200 per share
After a 10-for-1 stock split in June, Nvidia’s modest $115 share price is at odds with its WHERE size. With a market cap of $2.84 trillion, the GPU chipmaker is already the third-largest company in the world — behind Microsoft And Apple, which are worth $3.23 trillion and $3.3 trillion respectively.
A 73% rally to $200 would push Nvidia’s market cap to around $4.9 billion, likely putting it in the top spot. And with a future price earnings ratio With a price/earnings ratio of just 41, the stock seems to have room to grow given its triple-digit earnings growth.
That said, unlike the typical mega-cap company, which has typically built its business over decades by serving established, profitable sectors of the economy, Nvidia’s business remains speculative and uncertain — giving it a discounted valuation. The company likely won’t hit a $200 stock price in 2024 or soon, until the software side of the AI ​​industry catches on. own weight. And that is far from guaranteed.
Should You Invest $1,000 in Nvidia Now?
Before you buy Nvidia stock, here are some things to consider:
The Motley Fool Stock Advisor team of analysts has just identified what they think is the 10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The 10 stocks that made the cut could deliver monster returns in the years to come.
Think about when Nvidia made this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $710,860!*
Stock Advisor offers investors an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks each month. The Stock Advisor has service more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns as of September 16, 2024
Randi Zuckerberg, former chief marketer and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Goldman Sachs Group, Meta Platforms, Microsoft and Nvidia. The Motley Fool recommends the following options: long Jan 2026 $395 calls on Microsoft and short Jan 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Can Nvidia Stock Hit $200 by 2024? was originally published by The Motley Fool
