Nvidia Shares Hit a New Record High. Why Wall Street Believes They're Still Undervalued
Growth in expected earnings, share buybacks, and steady demand for AI give reason to expect the rally to continue
Nvidia shares hit a new record high for the first time since May / Photo: Photo Spirit / Shutterstock.com
On October 5, Nvidia shares rose 2.1% in New York to $238.90 per share, setting a new closing record for the first time since May, according to Barron’s. The previous record was $235.74.
Even after this, analysts consider the stock to be relatively cheap, according to MarketWatch . As Nvidia gets closer to meeting its financial forecasts, the market is finding it “increasingly difficult to ignore” the gap between its growth prospects and its market valuation, Wedbush analyst Matt Bryson told the publication.
Record-breaking, but not expensive?
Barron’s compares the current valuation to that of May: at that time, the multiple—which reflects the ratio of Nvidia’s stock price to its expected earnings for the next fiscal year—stood at 24, but has now fallen to 17.1, according to FactSet.
Another argument concerns share buybacks: Nvidia “generates tons of cash” and “appears ready to use a significant portion of it” for buybacks, Bryson said.
What Drives Optimism?
Barron’s saw grounds for expecting further growth in Nvidia’s stock in the results of its partner, Foxconn, the world’s largest contract electronics manufacturer. The Taiwanese manufacturer’s revenue jumped by 50 percent year-over-year in the last quarter. Foxconn expects its AI-related business to continue growing in the current quarter, although it did not disclose specific guidance.
Despite intensifying competition from other manufacturers and its own customers, Nvidia remains the “cornerstone of AI infrastructure,” according to BNP Paribas analyst Carl Ackerman, as quoted by MarketWatch. The bank attributes the company’s strong position to its broad range of hardware solutions, the CUDA software platform, and its networking products, according to Seeking Alpha.
What kind of growth is Wall Street expecting?
On October 5, BNP Paribas raised its price target for Nvidia shares from $285 to $345, according to Seeking Alpha. The new target implies upside potential of approximately 44% relative to the closing price of the last trading session in New York.
The average target price set by analysts in the FactSet consensus is $334.45 per share for Nvidia—40% above the closing price on October 5. Over the past three months, the total number of buy recommendations for the chipmaker has risen from 62 to 69, while the number of hold recommendations has fallen from three to two. Just as in the previous quarter, only one analyst recommends selling shares of one of the main beneficiaries of the AI boom.
This article was AI-translated and verified by a human editor
