Nvidia (NADSAQ:NVDA) continues to climb, with the $1.13 trillion graphics processing unit (GPU) titan adding another 6% to its valuation this week. Undoubtedly, shares of the massive AI winner are still hot, looking for even higher highs. Still, the stock’s valuation is getting harder to justify with each sizable upside move, and I think investors would do well to consider the risks and rivals who seem incredibly hungry for a slice of the AI chip pie.
Yes, it’s hard to find hair in Nvidia’s growth story. The company is firing on all cylinders and its TAM (Total Addressable Market) might seem limitless at this point! Also, AI has opened up so many new doors for Nvidia and other high-tech companies that have invested in the trend.
Arguably, Nvidia has one of the most spectacular growth profiles in recent memory, and while I think CEO Jensen Huang deserves a huge round of applause for his NVDA stock run, I can’t be optimistic about stock at these heights. For now, I’m inclined to be neutral on the stock, even as Wall Street analysts are quick to raise their price targets to catch up with the euphoric surge.
Nvidia Stock’s explosion over $1 trillion makes it an AI Kingpin
A market cap north of $1 trillion would have been unfathomable just a year ago, when it seemed like Nvidia’s glory days were over, as the stock lost about 66% of its value from peak to trough. At this juncture, investors are more than willing to pay for top-tier exposure to AI games. Certainly, AI may very well be the biggest trend since the rise of the internet, and while we may have yet to hit dot-com-style valuations, I don’t think investors should chase if they’re feeling a bit FOMO. losing).
It’s hard not to feel FOMO, as no one wants to miss out on the historic rise of generative AI technologies. AI has serious monetization potential, but so did the internet in the 1990s. That’s why it might be wise to pay a little more attention to the risks rather than the potential short-term rewards with a hot name like Nvidia.
Nvidia has surpassed its rivals for now
Nvidia wasn’t just in the right place at the right time; she has been laying the groundwork for the AI boom for many years. When ChatGPT arrived, sparking a huge amount of interest in all things AI, Nvidia was ready to seize the opportunity. While Nvidia seems to have had its way with rivals in the first innings of the AI boom, I wouldn’t discount Nvidia’s other rivals. One has to imagine that everyone wants a piece of what made Nvidia such a profound success.
AMD (Nasdaq:AMD) is an obvious rival that has its own AI firepower, with its recently revealed MI300X chip. However, AMD has to catch up to challenge Nvidia’s top dog, and Citi analyst Christopher Danely isn’t too sure AMD can catch up (Danely noted that a third-party assessment has seen AMD hardware at 80% the speed of NVIDIA hardware).
In fact, Mr. Danely strongly argues why it’s best to go with the leader in the AI chip space. It’s really hard to catch up when it comes to any kind of semiconductor.
Is NVDA stock a buy, according to analysts?
Turning to Wall Street, NVDA stock shows up as a Strong Buy. Out of 33 analyst ratings, there are 30 buys, two holds, and one sell recommendation.
Nvidia’s average stock price target is $484.30, implying 7.4% upside potential. Analysts’ price targets range from a low of $370.00 per share to a high of $600.00 per share.
The bottom line on NVDA stock
Nvidia stock is a leader that many analysts think could stay ahead for a while. The stock boasts a “Strong Buy” rating for a reason! However, I think the trailing price/earnings multiple of 231x (well above the 35.1x for the industry average) already reflects Nvidia’s dominance.
If a capable rival, especially AMD, can close the gap, or if demand for AI chips falls short of expectations from here, NVDA stock could be vulnerable to another bust. After a failure like that, I’d be more inclined to stamp the ticket.
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