Last year was another great year for technology stocks in particular. Artificial intelligence (AI)-driven tailwinds have helped drive progress Standard & Poor’s 500 increased by 23%, while Nasdaq Composite He received an impressive 29%.
the “The Magnificent Seven“Stocks have been among the market’s biggest gainers this year, and perhaps none have received more attention than stocks of leading semiconductor companies. Nvidia – Which was the best performing stock in Dow Jones Industrial Average In 2024.
Last year, Nvidia gained nearly $2.1 trillion in market cap — the most of any company. This pushed Nvidia to become one of the most valuable companies in the world. While Nvidia’s current run may suggest the stock is set for a pullback, Wedbush Securities technology analyst Dan Ives is calling for significantly more growth in the future for the AI darling — and I agree.
Let’s take a look at Nvidia’s latest catalysts and show why 2025 could be another year for the record books.
Over the past couple of years, Nvidia has emerged as the leader in the AI marathon, and it all boils down to one thing: graphics processing units (GPUs). GPUs are advanced chipsets essential for developing generative AI applications.
Nvidia’s deep roster of GPUs has helped the company separate itself from competitors like Advanced micro devicesand get An estimated 90% of the GPU market.
To add some context here, Nvidia’s dominance has fueled consistent revenue and earnings growth for the company – allowing it to double down on research and development (R&D) and pioneer newer, innovative products. Enter Blackwell, Nvidia’s next-gen GPU architecture, which is said to already be sold out within the next 12 months.
While this is a company-specific tailwind, Ives believes broader investments in AI infrastructure could exceed $1 trillion in the coming years. Nvidia is benefiting from this windfall of higher capex (capex), underscored by investments in its European GPU specialist group i won’tand the acquisition of AI infrastructure company Run:ai (acquired for US$700 million).
Given the massive rise in Nvidia’s stock price, it’s wise to look at some of the company’s valuation metrics and attribute them to the catalysts I’ve covered above.
|
Rating scale |
Value as of January 3 |
|---|---|
|
Price to earnings ratio (P/E). |
56.7 |
|
Forward P/E ratio |
48.8 |
|
Price to Free Cash Flow (P/FCF) |
63.4 |
|
Price/Earnings to Growth (PEG) ratio. |
1.0 |
Data source: YCharts.
On the surface, the above valuation multiples might give the illusion that Nvidia is an expensive stock. But when you consider that the company’s P/E ratio and P/E ratio are materially lower today than they were a year ago, Nvidia’s valuation profile looks pretty compelling. Essentially, the company’s earnings are accelerating at a faster rate than the company’s value (price, or market capitalization), so Nvidia’s valuation can be considered very reasonable.
Furthermore, a PEG ratio of 1 indicates that Nvidia is highly valued at the moment. I think it’s very difficult to predict what Nvidia’s earnings profile could look like over the next several years as Blackwell’s investments and the company’s peripheral investments start to pay off.
Not only do I see Nvidia as a screaming buy right now, but I think the company could be the first to enter exclusive territory in 2025: the $4 trillion club. I’m excited about how Nvidia has performed this year, and I think the stock represents a compelling buy opportunity now for AI and growth investors alike.
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Adam Spatacco He has positions at Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Nebius Group, and Nvidia. The Motley Fool has Disclosure policy.
This AI company was valued at $2 trillion last year, and Wall Street believes it could trend much higher in 2025. Originally published by The Motley Fool