Nvidia (NASDAQ: NVDA) is one of the hottest artificial intelligence (AI) stocks on the market. Its post-split stock price has risen nearly 700% since 2023. But the stock has fallen 14% since its peak of around $136 per share in June, shortly after the company completed its 10-for-1 stock split.
One reason for the decline is uncertainty about the sustainability of AI spending. Investors want evidence that capital expenditures boost revenue growth and productivity. But scant supporting evidence has led to concerns about AI budget cuts.
Another reason for the decline is the sequential decline in Nvidia’s gross margin in the recent quarter, a possible sign of competitive pressure. Several companies are designing custom AI chips and investors are worried that Nvidia could lose its market dominance.
Wall Street, however, has good news for Nvidia shareholders on both fronts. Here are the key details.
JPMorgan says investment in AI infrastructure gaining momentum
Jonathan Linden and Joe Seydl at JPMorgan believe that capital spending related to artificial intelligence (AI) infrastructure continues to gain momentum. They estimate spending by five hyperscale cloud companies — Microsoft, Amazon, Alphabet, Meta platformsAnd Oracle — will increase by 24% annually over the next five years, compared to 15% annually over the past five years.
What’s more, Linden and Seydl expect AI to have a measurable impact on productivity by the end of the decade. That may sound like a distant future, but they explained that the window between technological innovation and productivity gains is actually shrinking. “Think of it this way: It took 15 years for the personal computer to increase the productivity of the economy. AI could do it in seven.”
The International Data Corp. predicts that artificial intelligence will add $4.9 trillion to the global economy in 2030, up from $1.2 trillion this year. Under that scenario, AI would account for 3.5% of global GDP by the end of the decade. The implications of that estimate are enormous: Investment in AI is not only worthwhile, but critical for companies hoping to keep up with their competitors.
Naysayers will undoubtedly write off AI as an overhyped technology in the coming years, just as some did the internet in the 1990s. And AI stocks may eventually experience a massive decline, much like internet stocks did in the early 2000s. But the naysayers will ultimately be proven wrong, and Nvidia’s stock could climb much higher in the future. Beth Kindig of the I/O Fund even believes Nvidia could be a $10 trillion company by 2030.
Morgan Stanley Says Nvidia’s Competitors Consistently Fall Short
Nvidia builds the most widely distributed graphics processing units (GPUs) in the computing industry. The company accounted for 98% of data center GPU shipments last year, and its processors are the gold standard for accelerating AI workloads. Nvidia’s market share of AI chips exceeds 80%, and Forrester Research recently wrote: “Without Nvidia GPUs, modern AI wouldn’t be possible.”
The tidal wave of demand for AI infrastructure has naturally drawn more competitors into the market. That includes chipmakers like Intel And Advanced micro devicesas well as major tech companies such as Alphabet, Amazon and Apple. They’ve all designed alternative GPUs or custom AI accelerators. But CEO Jensen Huang is confident that Nvidia chips offer the “lowest total cost of ownership,” meaning chips with cheaper price points can actually cost more when associated costs are factored in.
Still, Nvidia will almost certainly lose some market share as custom AI accelerators become increasingly popular in the coming years. But losing some market share isn’t the same as losing its market leadership. Nvidia’s superior hardware, coupled with its robust ecosystem of supporting developer software, gives the company a deep competitive moat that rivals will struggle to penetrate.
Analysts at Morgan Stanley said in a recent note. “We’ve seen a lot of threats come and go to Nvidia since 2018 — something like a dozen startups, several efforts from commercial competitors like Intel and AMD, and several custom designs. Most of them have fallen short. Competing with Nvidia, a company that spends $10 billion a year on R&D, is a tough proposition.”
Wall Street expects Nvidia’s profits to grow rapidly
Wall Street is very bullish on Nvidia. Of the 64 analysts covering the company, 94% rate the stock as a buy and the remaining 6% as a hold. None recommend selling the stock right now. And Nvidia has a median price target of $150 per share, which represents a 29% upside from its current price of $116, according to CNN Business.
Wall Street analysts expect Nvidia to grow its earnings 36% per year over the next three years. That consensus estimate makes its current valuation of 54x earnings seem pretty reasonable. That figure translates to a PEG ratio of 1.5, a significant discount from the three-year average of 3.1. That’s good news for potential investors.
Should You Invest $1,000 in Nvidia Now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Randi Zuckerberg, former chief market development officer and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions at Amazon and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, JPMorgan Chase, Meta Platforms, Microsoft, Nvidia and Oracle. The Motley Fool recommends Intel and recommends the following options: long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
Nvidia stock investors just got some good news from Wall Street: The artificial intelligence (AI) boom is in full swing was originally published by The Motley Fool
