Nvidia (ticker: NVDA) shares experienced a slight dip in premarket trading on Wednesday after reaching an all-time high closing price of $487.84 the day before. While some investors are questioning whether the company's momentum can continue, analysts at Melius Research believe that Nvidia might still be a bargain.
A Period of Consolidation
Following its impressive performance this year, a period of consolidation for Nvidia is to be expected. However, according to Melius' Ben Reitzes, the current valuation and prospects of the company should reassure investors as we approach the end of 2023. Reitzes maintains a Buy rating on the stock and has set a price target of $730, indicating a potential 50% upside from Tuesday's close.
Valuation Comparison
Melius states that Nvidia currently trades at a price-to-earnings multiple of approximately 28 times its expected 2024 earnings, based on Monday's closing price. This represents a modest premium compared to the average of 23 times for a basket of AI-related stocks. FactSet data reveals that Nvidia's price-to-earnings ratio rose to 29 times its expected 2024 earnings on Tuesday.
Reitzes emphasizes that when considering growth adjustments for CY24, Nvidia appears "cheaper" in comparison to Alphabet, Microsoft, and Apple.
Concerns and Outlook
Conversations with investors have highlighted concerns regarding the potential formation of a bubble in the artificial intelligence market, which has been a driving force behind Nvidia's success. Additionally, there are discussions about whether the supply and demand for chips are starting to equalize.
Despite these concerns, Reitzes believes that Nvidia is laying the groundwork for its long-term success by developing a software ecosystem and recurring cloud services alongside its hardware. Furthermore, the company's $25 billion share buyback program is expected to provide additional support to the stock.
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