Nvidia’s Record Highs: A Deeper Dive into the Chip Powerhouse’s Future
In a dazzling ascent, Nvidia’s (NASDAQ:NVDA) stock soared to new heights, hitting an all-time high of $538 per share just a week after the last market analysis. The artificial intelligence (AI) juggernaut has shown an impressive 8.46% performance surge since the beginning of the year, raising the question: is it still a smart buy?
Recently, DA Davidson analysts projected a 15% downside risk for Nvidia, anticipating a U-turn within the next two to six quarters as the AI hype bubble deflates. Their skepticism centers on the belief that the intense investment witnessed in 2023 might not persist beyond 2024. Despite this caution, Nvidia continues to be a primary player in the emerging AI generative ecosystem.
The bullish sentiment surrounding Nvidia is exemplified by its remarkable 233% year-over-year performance, typically signaling a subsequent wind-down period. However, the recent all-time high suggests the potential for another triple-digit performance in 2024. So, what are the arguments both for and against this optimistic outlook?
Navigating Economic Challenges
Amidst economic uncertainties, concerns arise regarding Nvidia’s performance in the face of potential rate hikes and recession fears. Despite a robust non-farm payroll report, the market still prices in a 63.77% probability of a rate hike in March. The fragility of the “hot labor market” and an influx of government-funded jobs raise eyebrows, contributing to a 62.9% recession chance, as per the New York Fed.
In the event of a recession, Nvidia could experience a drop in demand as consumer spending dwindles. Even with potential rate cuts aimed at stimulating the economy, business investments in data centers, a domain where Nvidia has transitioned successfully, might decrease. The severity of the recession, if it materializes, would significantly impact Nvidia’s macroeconomic performance in 2024.
US Export Controls: A Challenge or Overhyped Obstacle?
The US government imposed chip export restrictions on China in October, affecting chips like A800 and H800 designed by Nvidia explicitly for the Chinese market. However, Nvidia’s competitors, AMD and Intel, face similar challenges. Notably, Nvidia’s broader range of consumer-grade chips remains unaffected, found in laptops, PC desktops, and smartphones.
The US government assesses chips based on computing prowess and interconnectivity, especially those utilized in AI data centers. To counter potential losses in data center demand, Nvidia plans to expand in Vietnam and Malaysia through a partnership with YTL Power International. The company anticipates minimal impact until China establishes its chip foundries.
Unleashing Generative AI Potential
One of the key drivers behind Nvidia’s optimistic trajectory is the burgeoning demand for AI-powered applications. The simplicity of this thesis, however, faces complexity in pricing as new applications emerge monthly. For instance, Magnific.ai’s groundbreaking upscaling feature challenges preconceived notions about image fidelity.
Animating AI-generated images is a recent development, paving the way for user-generated short films of unprecedented quality. Platforms like Midjourney, despite their popularity, are yet to launch comprehensive app services, indicating the untapped potential in the generative AI space. The demand for Nvidia’s chips might be significantly underestimated given the rapid evolution and novelty of generative AI.
According to 38 analysts surveyed by Nasdaq, NVDA stock is still a “strong buy,” with an average price target of $662 compared to the current $535. The high estimate soars to $1100, emphasizing the bullish outlook, while even the low forecast of $560 per share remains above the current market price. As Nvidia continues to innovate and adapt to challenges, its stock appears poised for a compelling journey in 2024 and beyond.
