Nasdaq NVDA Nvidia

Nvidia (NVDA) stock has been red-hot of late, blasting off around 70% from its early-October lows on the back of an incredible quarter, an impressive outlook, and euphoria over the company's role in the future of the metaverse.

Undoubtedly, Nvidia's incredible GPUs will help power the metaverse of the future that so many firms want a slice of, and with that could come even more demand for graphical power.

For now, Nvidia is a leader in GPUs, with applications that span a wide range of the hottest technological trends, from smart cars to machine learning, to Bitcoin mining and the metaverse.

Indeed, Nvidia is no longer just a gaming hardware firm. It's so much more, and with that, it's tough to fathom the magnitude of long-term growth the firm is capable of under the leadership of its legendary top boss Jensen Huang.

Arguably, Mr. Huang is one of the brightest minds in Silicon Valley. Despite the incredibly frothy valuation, it's an absolutely terrible idea to bet against the man, or his company, as Nvidia looks to form a moat around its dominance in the GPU space.

Despite the many exciting developments that have supported the latest parabolic move higher, I'm in no rush to chase the stock at a new high. Its incredibly stretched valuation metrics (34.1 times sales) leave it vulnerable to a steep pullback.

For now, I am neutral on the name but would look to step in on a meaningful dip if the stock experiences a blow-off top. (See Analysts’ Top Stocks on TipRanks)

Too Much Excitement Baked into NVDA Stock?

It's tough to miss such a run in a stock you've kept on your watchlist. While recent developments are incredibly bullish for long-term fundamentals, investors must be careful they're not overpaying for a name that already has perfection baked in.

The company's third-quarter results were truly outstanding. Gaming and Data Center segments powered the firm to a solid beat. Demand continues to be overwhelming, and with supply chain issues still dampening the results, it's tough to gauge just how incredible the quarter could have been had COVID-19 disruptions not impacted the supply side.

It wasn't just Gaming and Data Centers that were strong. Nvidia experienced solid results right across the board. With a front-row seat to many emerging technological trends, it's not a mystery as to why the price of admission into the name continues to be hefty.

Into the Metaverse

Meta Platforms' (FB) focus on the metaverse could be a massive boon to Nvidia for many years to come. Still, it's unclear as to how much the demand for Nvidia's offerings will be boosted, given the nascent state of the metaverse. Indeed, a mainstream metaverse like the one touted by Meta Platforms could still be years away.

Regardless, Nvidia is in a great spot to benefit from the trend, with its Omniverse Digital Twin technology, which could unlock even more growth from a company that's continued raising the bar.

It's hard not to get incredibly excited about Nvidia and its incredible innovations. Still, the valuation is tough to get behind, especially if supply chain issues continue plaguing the firm in the new year and beyond.

Wall Street's Take

Turning to Wall Street, Nvidia has a Strong Buy consensus rating, based on 22 Buys and two Holds assigned in the past three months. The average Nvidia price target of $358.36 implies 9.2% upside potential.

Analyst price targets range from a low of $285 per share to a high of $400 per share.

Is the Parabolic Pop Sustainable?

With a consensus analyst price target that keeps rising (currently at $358.36), Nvidia is one of the high-flyers that could continue to defy the laws of gravity.

As such, investors in the name should be in no rush to take profits just yet. The stock is incredibly expensive, but it's expensive for very good reasons, and the list of reasons seems to be growing with time.

Disclosure: Joey Frenette doesn't own shares of any mentioned companies at the time of publication.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates  Read full disclaimer >

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NVIDIA Corporation (NVDA) is a high-quality chip company, but that does not automatically guarantee strong future returns. Valuations have to be considered, and NVIDIA is historically expensive today.

Despite its solid growth and strong fundamentals, NVIDIA Corporation does not seem like a good buy at current prices, which is why I am neutral on the stock today. (See Analysts’ Top Stocks on TipRanks)

Near-Term Growth Outlook

NVIDIA has grown its business at an attractive pace in the last couple of years, on the back of strong graphics card demand by both gamers and crypto miners. At the same time, NVIDIA also grew its business in other spaces, such as data centers and autonomous driving technologies. Thanks to its strong tech, NVIDIA was able to gain market share in these key markets versus its peers.

However, the law of large numbers dictates that NVIDIA's relative growth rate will inevitably decline in the future as the company gets bigger and matures. The analyst community also forecasts this decline in its relative growth rate.

Following a massive 60% revenue increase this year (NVIDIA's current fiscal year ends in January 2022), analysts are predicting revenue growth in the mid-to-high-teens range for the next two years, which is well below the approximate 30% revenue growth rate of the last five years.

This growth deceleration can be explained by the fact that market growth rates, e.g., for graphic cards and data centers, are slowing down to some degree, compared to how quickly these markets grew in the past. The Metaverse could allow for a meaningful increase in NVIDIA's addressable market in the long run.

Still, it seems doubtful that Metaverse spending by Meta Platforms (FB) and others will have an outsized impact in the near term, as the Metaverse is likely a technology that will take off several years from now. Metaverse spending will probably not substantially impact NVIDIA's business growth rate in the current year and the next one or two years.

NVIDIA Is Expensive Right Here

Considering the slowing growth (albeit NVIDIA will still grow at a compelling pace of 15%-20% in the next two years), NVIDIA looks relatively pricy today. The company is valued at around 73x this year's net profits.

In contrast, the long-term median earnings multiple for the stock is 51 - thus trading at a ~40% premium compared to its historical valuation, even though growth in the coming years will be lower than that of the last couple of years.

Likewise, when we look at NVIDIA's forward enterprise value-to-EBITDA multiple (which accounts for changes in debt usage and a company's cash position), the company still looks expensive. Shares are trading at 66x EBITDA today, whereas the five-year average EBITDA multiple is 37 - this means that NVIDIA trades at a massive 78% premium to its historic valuation today.

One can, of course, argue that NVIDIA's valuation range in the past used to be too low and that the current valuation is more reflective of underlying value. However, I believe that it could be risky to assume that valuations have moved to a higher level and that they will permanently remain this high going forward.

Quality at Too-High of a Price

NVIDIA has strong technology, and it will continue to generate reliable business growth, although likely not at the rate seen in the last couple of years. NVIDIA also has a clean balance sheet, which helps reduce risks.

However, due to its pretty high valuation, NVIDIA does not look like an attractive investment today, I believe. Buying shares when a company is trading in line with historical valuations or at a discount seems more opportune than buying when shares are historically expensive.

Wall Street's Take

Turning to Wall Street, Nvidia has a Strong Buy consensus rating, based on 22 Buys and two Holds assigned in the past three months. The average Nvidia price target of $358.36 implies 11% upside potential.

Disclosure: At the time of publication, Jonathan Weber did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates  Read full disclaimer >

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One of the top chipmakers that investors continue to buy heavily right now is Nvidia (NVDA). This company's stock price continues to hover around all-time highs, as supply chain concerns related to chip production continue to provide top-tier chip makers such as Nvidia with momentum right now.

Nvidia's valuation is quickly approaching the $1 trillion level, a significant psychological threshold that only a handful of U.S. companies have been able to surpass. Whether Nvidia ultimately gets there in short order will be intriguing to watch.

Of course, bulls on Nvidia point to the company's major business segments, including Handheld and Consumer Electronics, Media and Communications Processors, and Graphics Processing Units, as drivers of the growth thesis around this stock. A true "picks and shovels" play on technological adoption, Nvidia appears to be a cutting-edge stock that bulls can't get enough of.

That said, given how far and how fast NVDA stock has run, there are valuation concerns. This company's growth hasn't been unnoticed, which is a great thing for investors. However, whenever a stock runs like this, concerns about a price correction can surface.

Given various macroeconomic headwinds that may materialize in the near term (think, Central Bank tapering, slowing demand, or an outright recession), Nvidia remains a high-growth stock with tremendous upside potential, but also significant risk relative to the market.

I'm currently neutral on NVDA stock right now, considering these concerns. That said, there's certainly a strong bull argument to be made for this stock right now. (See Analysts' Top Stocks on TipRanks)

Let's dive into what investors may want to be watching with Nvidia currently.

Gaming Business Poised for Long-Term Growth

For chip-maker Nvidia, the most critical catalyst for this company happens to be growth in gaming. Indeed, over this past quarter, the largest spruce of revenue was its gaming segment, which accounted for approximately 45% of the company's top line.

That's significant.

What's more, gaming-related chip revenues rose 42% on a year-over-year basis. This was tied to Nvidia's push to ramp up GPU supplies to meet enormous end-market demand.

Nvidia's management team also stated that there was a sharp jump in demand for its laptop GPUs from the prior-year period. The rise in high-end laptops sales was responsible for this.

With an 83% market share, Nvidia is undoubtedly a dominant force in the graphics cards space. The discrete graphics card market is anticipated to register $44 billion in annual sales by 2023, compared to $29 billion in 2020. Hence, investors of this graphics semiconductor supplier can expect a sharp growth in the firm's gaming revenue.

Taking Steps to Continue Its Domination

Nvidia is striving to dominate the gaming space, which remains the most critical driver of Nvidia's business. Consistently bringing out better and faster chips is integral to Nvidia maintaining its grasp on this high-growth segment. For investors who have followed Nvidia over the years, it appears this company has yet to disappoint.

The company's focus on improving its market share in the GPU segment has worked wonders for Nvidia's recent earnings. The company's recently-announced next-generation graphic cards, code-named Ada Lovelace (after the famous mathematician), have many investors excited.

Expectations are that these graphic cards could be ready to hit the market next year and could be twice as fast as current cards. While the current generation Ampere cards from Nvidia are based on an 8nm manufacturing process, these are anticipated to be based on a 5-nanometer (nm) manufacturing process.

Indeed, this could be a massive catalyst for this fast-growing company. Analysts factoring in the potential growth from these updated cards suggest Nvidia could grow its bottom line by 40% next year. Such bottom-line growth could propel the company's valuation even higher and allow Nvidia to grow into what many believe is an untenable valuation right now.

Wall Street's Take

Turning to Wall Street, Nvidia has a Strong Buy consensus rating, based on 22 Buys and two Holds assigned in the past three months. The average Nvidia price target of $358.36 implies 7.4% upside potential.

Analyst price targets range from a low of $285 per share to a high of $400 per share.

Bottom Line

Looking at Nvidia from a fundamentals perspective, there's certainly appetite from investors to take an aggressive approach to forecast future earnings and work off of forward-looking numbers. On that basis, perhaps this company's valuation makes sense.

Of course, Nvidia will need to continue to execute. Thus far, the company hasn't disappointed. However, there's always execution risk with any stock, and investors need to consider all the possible outcomes in the years to come.

For now, the outlook undoubtedly is bright for Nvidia. Until growth in gaming slows down, this is a stock that's likely to remain a top pick for long-term growth investors.

Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates  Read full disclaimer >

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