Nvidia Price Estimate Revised to $134, Here’s Why

by Trefis Team
-36.74%
Downside
211
Market
134
Trefis
NVDA
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Nvidia’s (NASDAQ:NVDA) market value has increased by nearly 180% in the past 12 months, a staggering rally for a company this size. Its current market cap stands at $108 billion, implying that the company has added nearly $70 billion in market value in the past year alone. With a price-to-earnings ratio of nearly 50 and price-to-sales ratio of more than 12, Nvidia’s stock is fairly expensive by most measures. Much of its market value is tied to the expected future growth, as investors bank on the potential disruption that Nvidia can cause in the data center chip business, and its ability to ride the wave of big data analytics and artificial intelligence. There is a lot of merit to this, which has prompted us to revise our price estimate for Nvidia to $134. However, our price still stands nearly 25% below the market. While we think that the stock has moved for valid reasons, the magnitude of the move appears excessive and may reflect over-enthusiasm.

Why Nvidia’s Stock Has Rallied 

Likely the biggest reason behind the massive rally by Nvidia has been the growth of its data center business. In the first half of this year, the revenue from this segment stood at $825 million, representing year-over-year growth of about 180%. The demand from cloud service providers and enterprises building training clusters for web services remains strong, with significant purchases coming from high-performance computing, GRID graphics virtualization, and the DGX-1 AI super-computer. Tesla GPUs are gaining traction among supercomputing centers globally. The possibility that Nvidia could make a significant dent in what has been traditionally Intel’s stronghold is an exciting prospect for Nvidia’s investors, and one that has fueled its recent stock rally.

Major cloud-based service providers such as Amazon Web Services, Microsoft Azure, and Alibaba Cloud are deploying Nvidia’s GPUs as co-processors in their data centers to equip them with AI, data analytics, and parallel computing. The company is expanding its deep learning platform as well. Interest in deep learning is surging as industries and researchers increasingly seek to harness this revolutionary technology.  Being at the forefront of the technology, Nvidia is poised to gain from the growth. Additionally, we note that the continued strong demand for discrete GPUs among gamers and professional users has allowed Nvidia to focus on performance and charge higher prices. This has offset efficiency gains from production, which could have been passed on to consumers.

See our complete analysis for Nvidia

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