Put NVDA stock at the top of your watchlist
After being considerably lower in 2022, shares of Nvidia (NASDAQ:NVDA) have made a stunning comeback so far in 2023. Year-to-date, NVDA stock is up around 78.5%, driven by the recent wave of “AI mania”.
With Nvidia providing the GPUs used to power Open AI ChatGPT platform, investors are out of the money to buy NVDA to play this trend.
That said, when skeptics say that the recent “AI mania” is little more than “AI hype,” and therefore unsustainable, they may be right to some degree. The market may be overdoing it right now with AI stocks.
That doesn’t mean you should skip NVDA. Let’s dive in and see why now might be the time to add this stock to your watchlist.
This chipmaker’s AI enablers are the real deal
In an article last month about another popular AI stock, C3.ai (NYSE:AI), I argued that his AI enablers were the real deal. The same applies here with Nvidia. The potential benefit of artificial intelligence for this company goes far beyond the continued rise of ChatGPT.
On the contrary, with ChatGPT kicking off an AI arms race among big tech, the chipmaker is well positioned as it sells the shovels for this digital gold rush. That’s not all. In addition to being poised to be a major AI hardware vendor, Nvidia is also looking to get into the software side of things.
As the company indicated in its latest quarterly earnings release, plans to launch AI cloud service offerings are underway. Over time, this could provide a stable, high-margin revenue stream for Nvidia, which has historically struggled with the cyclicality of the semiconductor space.
Again though, while the market isn’t making a mountain of these AI-related tailwinds, some say they’re already priced in to NVDA’s stock price, after its strong rise this year.
‘IA Hype?’ Yes, but it is not a deciding factor
Alongside the bullish comments on Nvidia, one can easily find more skeptical takes on the stock’s future prospects. I will admit that those who expose the case of the bear make some valid points. On the one hand, their argument that “AI hype” has made stocks expensive makes sense.
After surging over the past two months, NVDA stock is once again trading at a high earnings multiple. Based on analyst forecasts calling for earnings of $4.43 per share for this fiscal year (ending January 2004), at nearly $260 per share today, NVDA is trading at approximately 58.7 times long-term benefits.
In addition, some uncertainty remains regarding short-term results. Demand for AI may be booming, but as KeyBanc analysts argued in January, demand among key end users for Nvidia’s chips has been steadily declining. Given both valuation concerns and the tech slowdown, continuing the NVDA rally is probably not the best move.
While the ongoing “hype” over this action warrants caution, it is not a deal breaker. If concerns about these two factors escalate, or if said hype reaches a near-term high, a buying opportunity may emerge.
While it’s best to take your time before entering/adding a position in NVDA, you don’t need to wait for stocks to recoup all of their last gains.
As Nvidia’s AI catalysts may have created a new low, a return to prices below $160 per share may not happen. Still, if there is a moderate level of pullback with the stock, seize the opportunity.
The rise of AI, coupled with a rebound in demand for the company’s existing lines of business, could lead to massive earnings growth in the coming years. That kind of growth could take the stock back to prices north of $300 per share, en route to new all-time highs.
Weighing the short-term risk against the long-term potential, here’s my verdict: watch NVDA stock and jump on any major weakness.
NVDA stock gets a B rating in portfolio binder.
As of the date of publication, Louis Navellier had a long position in NVDA. Louis Navellier has held (neither directly nor indirectly) any other position in the securities mentioned in this article.
The InvestorPlace research staff member primarily responsible for this article has not held (directly or indirectly) any position in the securities mentioned in this article.