Nvidia shares nudged higher in early Friday trading, keeping the stock on pace for a modest November gain, as investors step back from the tech giant's recent earnings report and assess its leadership role in the AI trade and its broader place in a next year's expected bull market.
Nvidia ( NVDA ) has been the single-large beneficiary of the AI boom, which began with the launch of OpenAI's ChatGPT chatbot in November of 2022, thanks to demand for its next-generation chips and processors which power the training and inferencing of the world's biggest AI systems.
Investors are betting big that AI will prove to be a transformative technology equal or greater to that of the birth of internet in the late 1990s, and have added a collective $8 trillion in market value to the six biggest tech stocks over the past two years.
Nvidia, for its part, has taken $2.9 trillion of that gain, propelling it from a mid-sized maker of gaming chips to the world's most-valuable company with a market value of $3.48 trillion, a level that sits just shy of the entire value of Britain's benchmark FTSE 100 index of Europe's biggest companies.
It's from those lofty heights, however, that investors will view that group's upcoming financial year, which begins in February, and the revenue prospects for its signature product, the Blackwell line of processors which are effectively considered the 'iPhone of AI.'
Blackwell is faster, more efficient, and uses less energy than Nvidia's legacy line of Hopper chips, and are thus tied to seemingly insatiable demand from the world's biggest hyperscalers like Microsoft ( MSFT ) , Amazon ( AMZN ) , Meta Platforms ( META ) and Google parent Alphabet ( GOOGL ) .
Wall Street analysts expect Blackwell sales to add "several billions" to Nvidia's fourth quarter revenue tally, before accelerating to around $62 billion in 2025 and $97 billion the following year.
Profits from the market-leading chips, which are the veritable heartbeat of the AI investment theme, are expected to be equally impressive, and even with the costs associated with ramping production, Nvidia will likely produce gross margins in the low 70% range over the first half of next year, with a mid-70% forecast over the final six months.
$100 billion profit target
Putting that into context, Nvidia reported net income of $4.37 billion in the fiscal year that ended in January of 2023 and included the launch of ChatGPT. By the end of the next fiscal year, that figure is forecast to rise to $102 billion.
What might be even more amazing is that fact that, for all the expected growth that is priced into Nvidia shares, they're really not that expensive when compared to their Magnificent 7 peers.
Nvidia trades at a multiple of 46.3 times its twelve month earnings forecast, a level that is only modestly higher than the 40.7 times multiple attached to Amazon and the staggering 136.5 times multiple tagged to Elon Musk's Tesla ( TSLA ) .
Related: Goldman Sachs analyst leads Nvidia price target overhauls after earnings
It's also a cash cow with very little debt, leaving it ample room for stock buybacks that reward investors for their longer-term views. Nvidia is likely to generated $62 billion in free cash flow in its coming fiscal year, according to GimmeCredit analyst Dave Novosel, with around $36 billion of that set aside for share buybacks.
That doesn't mean its bulletproof, of course, and investors have reacted with caution to its fiscal third quarter earnings report earlier this month, which showed a slowing revenue growth rate and moderating profit margins, while perhaps pricing in the impact of tariff and tech sector trade barriers expected from the incoming administration of President-elect Donald Trump.
Trade war concerns
Nvidia, which guides investors on revenue and profit forecasts for only the coming quarter, topped Wall Street estimates by only 1.5% for its end-January revenue tally of $37.5 billion.
That compares to forecast beats, when compared to Street estimates, of between 5% and 20% over the past two years.
On the tariff front, Nvidia is susceptible, as the world's biggest company, to finding itself at the center of a tech trade war between Washington and Beijing now that Trump has vowed to impose stiff levies on China imports, as well as from nascent tech-producing hubs in Mexico, shortly after taking office in November.
Related: Nvidia earnings adjust chances for S&P 500 record year
Reuters reported earlier this week that Nvidia's vice president of Worldwide Field Operations Jay Puri met with China officials as President Joe Biden prepares new tech export restrictions, expected to be extended under Trump, that could trigger reprisals from Beijing that disrupt global supply chains.
CEO Jensen Huang, however, appeared confident that his company would find a way out of the trade war crosshairs during an academic event in Hong Kong last week.
'Unique opportunity'
"Open science in global collaboration ... has been around for a very long time," told an event at the Hong Kong University of Science and Technology. "I don't know what's going to happen in the new administration, but whatever happens, we'll balance simultaneously compliance with laws and policies, continue to advance our technology and support and serve customers all over the world."
Still, Nvidia shares have fallen around 7% since its October quarter report, compared to a modest 0.5% gain for the Nasdaq and a 1.4% advance for the S&P 500.
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For Benchmark analyst Cody Acree, however, trade and performance headwinds won't undermine what he considers the "compelling value [of Nvidia stock] for thoughtful investors willing to look past the near-term noise."
Acree, who carries an 'overweight' rating with a $190 price target, says the selloff is "an opportunity in the industry’s most unique investment property that is a critical key to the early stages of AI transforming how we, as a people, interact with technology."
Nvidia shares were last marked 1% higher in premarket trading to indicate an opening bell price of $136.70 each, a move that would stretch the stock's November gain to 2.9% and its fourth quarter advance to 12.5%.
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