On May 30, Nvidia NVDA surged about 3% to join the elite club of Wall Street — the one trillion market cap holders — for a brief period on AI euphoria. At close, the chip giant’s market cap was $991.997 billion. Notably, Nvidia’s shares jumped about 30% in the past four days following its earnings release.
Nvidia shares are firing on all cylinders this year and the stock is up 174.5%. Last week, it stunned investors with its solid first-quarter fiscal 2024 results, wherein it topped both earnings and revenue estimates buoyed by the strength of its data center business. The company also offered a bullish revenue outlook for the current quarter on booming artificial intelligence (AI) demand for its high-powered chips.
For the second quarter of fiscal 2024, the graphics chipmaker expects revenues of around $11 billion, plus or minus 2% on increased demand for its data-center family of products. Nvidia’s graphics processing units, or GPUs, are key to generative AI platforms like OpenAI’s ChatGPT and Google’s Bard (read: ETFs to Buy on Nvidia's Blowout Q1 Earnings).
It is now time to determine if the super-rally will persist or if the bubble is set to burst. After all, “we learned from 2000-2003, companies that are going to change the world still have valuation limits," said Miller Tabak’s Maley, as quoted on Bloomberg.
How Long Will the Rally Continue?
Wall Street is super-bullish on the chipmaker. Out of 34 analysts covering the stock, 79.41% offer a Strong Buy rating, while 11.76% attach a Buy rating. Only three analysts prefer to “Hold” this stock, while none opt for a “Sell.”
What Does the Current Valuation Say?
Nvidia is overvalued in every respect. Going by valuation metrics, the forward P/E ratio of NVDA is 81.64X versus the industry average of 19.73X. The price-to-book ratio of NVDA is 39.28X versus 1.77X. The price/sales ratio of NVDA is 37.22X versus the industry score of 1.89X. NVDA shares have reached their all-time peak P/E ratio. Before this, NVDA recorded its peak of 68 times expected earnings in 2021, according to Refinitiv data, as quoted on Reuters.
At Least 7% Further Rally Likely, 50% Upside in Bull Case
The mean short-term price target on the stock offered by Wall Street analysts is $429.69, up 7% from the current level, while the bullish case scenario offers a price target of $600, up 49.6% from the current close. It is a momentum stock. The stock has a Zacks Rank #2 (Buy).
Are Nvidia-Heavy ETFs Better Bets?
Investors intending to ride NVDA’s AI-growth story but still wary of the high valuation may take the ETF route. This is because ETFs helps investors to mitigate one stock’s average performance with the other stocks’ stellar performances.
Below, we highlight a few ETFs with heavy exposure to Nvidia for investors seeking to bet on the stock with much lower risk.
VanEck Semiconductor ETF SMH – about 15% Exposure to NVDA
AXS Esoterica NextG Economy ETF WUGI – about 14% focus on NVDA
Simplify Volt RoboCar Disruption and Tech ETF VCAR – about 10% focus on NVDA
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report