Do Nvidia’s stock growth drivers justify the price?

2022 could see even more tailwinds fueling the stock. Among these are the development of the metaverse, the protracted semiconductor crisis, and the inexorable increase in computer systems that require the chips manufactured by Nvidia.

All of this could help the stock’s market capitalization cross the $1,000,000 mark this year – it hit $800 billion in November 2021.

But is the current stock price overvalued? Or – given the volume of possible tailwinds – will Nvidia’s stock trajectory return to where it was throughout 2021?

What’s going on with Nvidia’s stock

Despite the excellent run, Nvidia shares were not helped by the market-wide tech pullback that began the new year. Year-to-date, the stock was down 11.9% to close Tuesday at $259.03. rival AMD [AMD] was also affected by the decline, falling 8.3% over the same period. This drop could offer investors a chance to acquire a fundamentally sound company.

Is Nvidia stock a buy?

The high valuation is fueled by sales growth. In the third quarter, Nvidia reported adjusted earnings of $1.17 per share, up 60% year-over-year. Revenue was $7.1 billion, up 50% year-over-year. Both figures exceeded Wall Street expectations.

One of the main growth drivers for Nvidia stock has been its data center business. Third-quarter data center revenue grew 55% year-over-year to $2.9 billion as ‘large-scale’ customers turn to Nvidia to provide the graphics processes needed for AI applications .

For the current year, Nvidia is expected to make $26.68 billion in revenue, a 60% year-over-year jump, while for the quarter ending January, the manufacturer chip company expects earnings to reach $7.4 billion, beating the expected $6.86. billion.

However, for the year ending in 2023, sales growth is expected to slow to 19.1%, according to Yahoo finance, amounting to 31.77 billion dollars.

Will Nvidia break $1 billion?

Looking ahead, what could help Nvidia cross the $1 trillion mark is its exposure to three big tech trends, according to The streets Bernard Zambonin. The first is the global semiconductor market, which according to Zamonin could be worth $803.15 billion in 2029. The second is the global gaming market, which is expected to have a CAGR of 14.5% through 2026. And finally the AI ​​market, which is expected to be worth $641 billion by 2028, growing at a CAGR of 36%.

$641billion

Rating the AI ​​market is expected to reach by 2028

The counter-argument is that Nvidia’s stock might be a bit stretched, a bit overvalued. Investors can expect a period of stagnation compared to last year’s growth. A forward P/E of 58.82 isn’t cheap, with rival AMD having a forward P/E of 42.19, so investors are arguably paying a premium for Nvidia.

“Even if its current valuations are stretched, it wouldn’t surprise me if the market reaction to Nvidia remains supportive, driven by the potential of the growth markets it serves,” Zamboni writes.

Among analysts, Nvidia has a price target of $341.20 – reaching that target would result in a 25% rise at Tuesday’s close.

Nvidia is still trying to get the ARM deal signed

Nvidia’s proposed acquisition of British chip designer ARM from Softbank is not going to be planned. The $40 billion deal will likely miss its target March deadline as regulators fear it will reduce competition and drive up prices.

In the latest twist, Nvidia has drafted a 28-page submission to the UK’s Competition and Markets Authority explaining why the deal should be approved, arguing that ARM’s position in the market is overstated. In the United States, the Federal Trade Commission filed a lawsuit to block the pending deal on antitrust grounds in December, while the European Commission also launched its own investigation.

A potential headache for the chipmaker. But how much of that affects the title’s quest to hit the $1 billion valuation is debatable. The next important date for investors will be the fourth quarter results, expected towards the end of February.

Warning Past performance is not a reliable indicator of future results.

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Richard L. Militello