Benjamin Hughes

May 12, 2024 - 23:31 pm

Nvidia's Soaring Success: Analysts' Bullish Outlook Amid Stock Surges

Nvidia, a titan in the chipmaking industry, has continued to captivate the market with its staggering performance, particularly after its stock soared by an impressive 240% in 2023. Despite a brief leveling off last week, the company's year-to-date shares are still up by nearly 80%. The financial analysis provider FactSet reveals an overwhelmingly optimistic consensus from analysts, with the majority maintaining a favorable outlook on Nvidia. Out of 59 analysts meticulously tracking the stock, an astounding 52 endorse it as a buy or overweight, while 7 suggest a more conservative hold rating. The average price target posited by these analysts stands at $1004.89, signifying an approximate 12% potential gain.

Despite such upbeat sentiment, the meteoric rise in Nvidia's share value has incited debate about the opportune moment for investment: should one take the plunge now, or hold off for a potential dip in price? In search of clarity, CNBC Pro consulted two distinguished fund managers who presented contrasting stances on this dilemma.

Investors Divided on Nvidia's Prospect

Embracing the Surge: A Case for Buying Nvidia

Trent Masters, a seasoned portfolio manager at Alphinity Investment Management based in Sydney, champions the purchase of Nvidia shares. He candidly admits the challenge in acquiring a stock following a substantial appreciation, "I personally missed the initial run in Nvidia and only bought the stock when it rose to $390 last May after its results. It's probably one of the hardest things I've done in the last 10 years to buy a stock that's already up so much because it feels like you could be making a mistake. But I think investors just have to view these things objectively," Masters asserts.

Masters underscores the unprecedented quadrupling of Nvidia's earnings per share to $29, a financial feat previously unseen. Despite his reservations regarding Nvidia's potential market share slippage to rivals such as Advanced Micro Devices over the long haul, Masters remains staunch in his bullish outlook. This optimism stems from his confidence in Nvidia's product lineup, its command of over half the market in graphics processing units (GPUs), and the sustained nature of its earnings.

The Prudent Approach: Holding Off on Nvidia

Adam Coons of Winthop Investment Management in the U.S. represents the counterpoint. While lauding Nvidia as a "great company" leading the AI chip sector, Coons has been tactically scaling back his investments in the stock. "Nvidia is a company that ran too far too fast. We've been holding Nvidia through the rally, but we've started to sell because the current valuations are inflated," he explains.

Coons now awaits a "normalization" in Nvidia's valuation metrics before considering a renewed enlargement of his investment in the company. Key factors guiding his decision include a price-to-earnings ratio realignment and the development of additional revenue streams that may eventually rationalize the current valuation. In particular, Coons points to an anticipated annualized revenue growth rate of around 50% over the next quintet of years as justification for the stock price, stating, "If it achieved that, I would definitely buy additional stock. I could even go overweight, but I need to feel more secure. Missing out on some gains is a trade-off I'm willing to accept to ensure I'm investing at the right price."

For the fiscal year 2024, Nvidia declared a colossal 265% escalation in total revenue compared to the previous year. Though Coons has diminished his stake in Nvidia, his outlook remains cautiously positive. He advises, "Long-term, it's undoubtedly a stock you'd want to have in your portfolio. However, in the short term, one should be wary of increased volatility and bigger market swings," emphasizing a vigilant approach.

The Technology Behind the Triumph

Nvidia's exceptional earnings and market performance can be attributed to its dominant position in the GPU marketplace, where it is renowned for providing top-tier products that cater to arduous computing tasks. Nvidia's GPUs are not merely essential components for gaming computers; they also play a pivotal role in artificial intelligence applications, cloud computing, and data centers, sectors that are witnessing explosive growth.