Nvidia's Strong Performance: Can It Reach New Heights?
Since October, the U.S. semiconductor sector has regained its strength. $NVIDIA Corp(NVDA)$ , often dubbed the "AI leader," has successfully surpassed its late August performance levels, inching closer to its historical high of $140.
In September, subtle changes in market sentiment played a pivotal role in Nvidia's turnaround:
1. Earnings Expectations
Nvidia's August 28 earnings report raised concerns. The management's guidance for the next quarter didn't meet analysts' highest expectations, leading to a drop in stock price, hitting a low of $100. However, this level seems to have formed a support zone, suggesting it’s tough for Nvidia to fall below $90-$100.
2. Weaker Recession Fears
The outlook for a U.S. economic recession has softened. Recent data, including the October 4 jobs report and the latest CPI figures, surpassed market expectations, bolstering hopes for a soft landing.
3. Stable Capital Expenditure
With the soft landing scenario, tech giants aren’t likely to drastically cut capital spending. Plus, anticipated interest rate cuts this year will lower capital costs, ensuring sustained demand for Nvidia’s chips.
Many tech companies are rolling out new products, maintaining the tech arms race and driving further demand for data center chips. Recent meetings with executives from Nvidia and $Taiwan Semiconductor Manufacturing(TSM)$ have revealed a broadly optimistic industry outlook, likely lasting until mid-2025. This growing confidence is reviving market sentiment.
What Is Nvidia’s Bottom Line?
Regarding Nvidia’s valuation, the outlook is currently chaotic. Each investor likely has their own valuation model. For 2023-2024, estimates suggest quarterly revenue and profit growth will hover around 20% or more.
The consensus for 2024’s earnings per share (EPS) is about $3.50, translating to a stock price of $140 at a 40x P/E ratio—Nvidia’s highest so far this year.
Looking ahead to 2025, analysts are split. Some predict EPS will reach $5, suggesting a target price of $200 at the same P/E ratio. Others believe growth will slow down after six months, forecasting $4.50 EPS and a reduced 35x P/E, leading to a target of $160.
Conclusion
The optimistic scenario targets $200, while the cautious view suggests $160. A neutral position lands around $180.
Ultimately, as long as the U.S. economy avoids a hard landing or recession and tech firms maintain their capital expenditures, Nvidia has a solid chance of breaking past its previous high of $140.
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