Nvidia (NASDAQ:NVDA) witnessed an impressive 239% surge in its stock throughout 2023, primarily propelled by the robust demand for its accelerated computing platform. The continuous expansion of the NVIDIA HGX platform, featuring the Hopper Tensor Core GPU architecture and InfiniBand networking, played a crucial role in achieving record-breaking revenue and sustaining the stock’s upward trajectory.

The NVIDIA HGX, in tandem with InfiniBand, serves as the benchmark reference architecture for artificial intelligence (AI) supercomputers and data center infrastructures. Many cutting-edge generative AI applications, including ChatGPT, Microsoft 365 Copilot, CoAssist, ServiceNow, and Adobe Firefly, rely on NVIDIA technology for development and operation.

As a result, Nvidia’s Data Center compute revenue quadrupled, and networking revenue nearly tripled in Q3 of the current fiscal year, with major contributions from consumer internet companies and enterprises. However, concerns have emerged about valuation and the potential peaking of Data Center revenue in 2024, with challenging year-over-year comparisons and new export control regulations further complicating the outlook.

Sales to China and affected destinations, constituting 20% to 25% of Data Center revenue, are now subject to licensing requirements, with Nvidia anticipating a significant decline in sales to these regions in the fourth quarter. These uncertainties prompt questions about the sustainability of the rally in Nvidia stock in 2024, despite the significant investments in infrastructure supporting the demand for accelerated computing.

Examining the Bull Case for Nvidia

Nvidia’s dominant position in the AI sector and its preferred GPUs in the market strengthen its bull case. The introduction of the H200 AI chips, equipped with advanced memory for efficient handling of large data volumes, demonstrates the company’s commitment to technological advancements.

Management assurance regarding continued growth in Data Center revenue until 2025, driven by the adoption of generative AI, reinforces Nvidia’s market leadership. The company’s expansion into diverse regions and industries, coupled with its focus on long-term opportunities in data centers, autonomous vehicles, gaming, and industrial digitalization, positions it favorably for sustained growth.

Nvidia’s leadership in PC gaming, supported by the adoption of NVIDIA RTX in games and the expected increase in gaming laptop sales, adds another layer to its growth prospects. The company’s dominance in workstation graphics, robust software ecosystem, and integration of AI are expected to fuel future growth.

In the automotive market, NVIDIA DRIVE, the end-to-end autonomous vehicle and AI cockpit platform, is set to drive market share. Nvidia’s solid financial position, characterized by high gross margins, strong cash flow generation, and significant share buybacks, further reinforces its positive outlook.

The Bottom Line on NVDA

With AI poised to be the core earnings driver in the coming years, analysts maintain a bullish outlook on NVDA stock. Among the 36 analysts covering the shares, 30 recommend a “Strong Buy,” three have a “Moderate Buy” rating, and three maintain a “Hold.” The average 12-month price target for Nvidia stock is $646.54, suggesting an expected upside of approximately 18% from current levels.

Featured Image: Megapixl

Please See Disclaimer