Nvidia(NASDAQ: NVDA) has been in scintillating form on the stock market in 2024, reaching gains of nearly 180% as of this writing. This is due to the robust growth that the company has been clocking in recent quarters on account of the strong demand for its graphics cards deployed in artificial intelligence (AI) servers.
The stock’s median 12-month price target of $150 — as per 64 analysts who cover Nvidia — indicates that there isn’t much upside on offer as it points toward gains of just 9% from current levels. However, Bank of America recently raised their price target on Nvidia from $165 to $190, which would translate into a 38% gain from current levels.
Let’s see why that was the case and check if this high-flying semiconductor stock could rise above consensus estimates and deliver stronger gains going forward.
Bank of America analysts have raised their price target on Nvidia because of the company’s dominant position in the AI chip market. They believe that the chipmaker could continue commanding an estimated 80% to 85% share of this space, which puts the company in a terrific position to capitalize on a $400 billion market opportunity.
Bank of America’s bullishness also stems from the arrival of Nvidia’s new generation of Blackwell processors, as well as a terrific earnings report from key supplier TSMC and Nvidia CEO Jensen Huang’s claim that the demand for its upcoming Blackwell cards is “insane.” It is worth noting that Nvidia management pointed out on the company’s August earnings-conference call that it is on track to sell several billion dollars’ worth of Blackwell processors in the fourth quarter of the current fiscal year.
More importantly, the demand for Blackwell chips is expected to be higher than their supply in 2025. That won’t be surprising as multiple cloud-computing giants are in line to deploy Nvidia’s Blackwell processors. In March this year, Nvidia management pointed out that Amazon Web Services, Dell Technologies, Google, Meta, Microsoft, OpenAI, Oracle, Tesla, and xAI are among the many companies expected to adopt the Blackwell platform.
That’s not surprising considering the huge leap in performance that Nvidia’s Blackwell platform is expected to deliver as compared to the prior-generation Hopper chips. More specifically, Nvidia is promising a 4 times increase in AI training performance and a 30 times jump in AI inference as compared to Hopper. Even better, Nvidia claims that Blackwell can train large language models (LLMs) at “up to 25x less cost and energy consumption than its predecessor.”
Moreover, Nvidia is set to extend its technology lead in the AI chip market with the arrival of Blackwell. That’s why it won’t be surprising to see the company maintaining a strong share of the AI chip market as Bank of America analysts predict. This should ideally pave the way for robust long-term growth for Nvidia.
Bank of America forecasts that the size of the AI accelerator market could jump to $280 billion in 2027 before heading north of $400 billion in the longer run. Nvidia has generated almost $49 billion in revenue from its data-center business this year. Of that, $42 billion is from sales of compute chips such as AI graphics cards, while the remaining was from sales of its networking solutions.
At this pace, Nvidia could end fiscal 2025 (which will end in January 2025) with $84 billion in revenue from sales of its AI accelerators. Assuming Nvidia controls even 75% of the AI accelerator market in 2027 (which will coincide with its fiscal 2028), it could generate $210 billion in revenue from this space (based on BofA’s $280 billion market-size estimate). That would be a huge jump from the AI accelerator revenue that Nvidia is set to report in the current fiscal year.
Throw in the potential revenue that Nvidia could generate from sales of its AI networking chips over the next five years, and there is a solid possibility of the company’s top line exceeding analysts’ expectations.
NVDA Revenue Estimates for Current Fiscal Year Chart
At the same time, the $400 billion long-term revenue opportunity in AI chips suggests that there may be more room for Nvidia to grow its AI revenue in the future. All this explains why analysts are expecting Nvidia’s bottom line to increase at an impressive annual rate of 57% for the next five years. The market could reward such solid earnings growth with more stock upside both in the short and the long run.
As such, this AI stock seems well placed to approach Bank of America’s updated price target before heading higher in the future. That’s why investors looking to add an AI stock to their portfolios would do well to buy Nvidia since it is trading at an attractive 35 times forward earnings right now, which is not all that expensive considering that the Nasdaq-100 index has a forward-earnings multiple of 30 (using the index as a proxy for tech stocks).
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Bank of America, Meta Platforms, Microsoft, Nvidia, Oracle, Taiwan Semiconductor Manufacturing, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The artificial intelligence (AI) market has continued gaining traction in 2024 as companies spend huge amounts of money on building up infrastructure so that they don’t fall behind in the race to deploy and integrate AI applications.
According to one estimate, global spending on AI is expected to cross a whopping $200 billion this year, and chipmakers such as Nvidia(NASDAQ: NVDA) have allowed investors to get rich from this massive splurge. Looking ahead, the market for semiconductors powering AI applications is expected to deliver a whopping $341 billion in annual revenue in 2033. The latest developments in the AI chip market signal that Nvidia continues to remain the best bet for investors to capitalize on this tremendous opportunity.
AMD’s and Intel’s earnings reports make it clear that they are far behind Nvidia
Nvidia enjoyed an early start in the AI chip market. Its A100 processors were used for training ChatGPT, the chatbot that kicked off the AI revolution toward the end of 2022. The company’s AI GPUs (graphics processing units) gained immense popularity and its H100 processor became a runaway success.
Rivals such as Advanced Micro Devices and Intel were left to play catch up as they didn’t have a chip powerful enough to compete with Nvidia’s H100. Both companies were behind Nvidia by at least a year on the AI chip development curve. This is evident from the fact that AMD’s rival to Nvidia’s H100, the MI300X accelerator, was launched in December 2023. Meanwhile, Intel’s H100 opponent, the Gaudi 3, was announced last month and will start shipping later this year.
Nvidia’s H100 went into full production in September 2022. This lead has allowed Nvidia to exercise a solid grip over the AI chip market and also explains why its competitors’ latest offerings aren’t gaining much traction. For instance, AMD sees its AI GPU sales hitting at least $4 billion in 2024. Intel is further behind and expects the Gaudi 3 launch to help it generate $500 million in AI chip sales in the second half of 2024.
Nvidia is leagues ahead of both Intel and AMD considering that it sold $47.5 billion worth of data center chips in fiscal 2024, an increase of 217% from the previous year. This also indicates that AMD and Intel’s new chips, which were supposed to help them cut into Nvidia’s 90%-plus market share, aren’t making much of a dent in the latter’s dominant position.
One of the reasons why that’s the case is because Nvidia has cornered a huge chunk of the supply of AI chips from its foundry partner, Taiwan Semiconductor Manufacturing (popularly known as TSMC). More specifically, Nvidia reportedly commands half of TSMC’s advanced chip packaging capacity that’s deployed for manufacturing AI chips.
What’s more, Nvidia is all set to widen the technology gap with its rivals with the launch of new AI GPUs based on the Blackwell architecture later this year. Market research company TrendForce expects Nvidia to secure a dedicated chip supply from TSMC for its next-generation chips.
TSMC’s monthly capacity to make advanced chips is expected to increase 150% this year to 40,000 wafers a month. By next year, TSMC is expected to double its capacity once again. The key thing to note here is that Nvidia is expected to consume more than half of TSMC’s advanced chip packaging capacity. So, Nvidia’s tight control over TSMC’s advanced chip supply is going to help it keep the likes of Intel and AMD at bay.
Nvidia’s AI lead is set to translate into terrific growth
Investment bank UBS recently increased its Nvidia price target to $1,150 from $1,100 citing the impending arrival of its next-generation AI GPUs. UBS is expecting the company to deliver $175 billion in revenue in 2025 (which will coincide with its fiscal 2026), along with earnings of $41 per share. Those estimates point toward a massive jump compared to Nvidia’s fiscal 2024 revenue of $60.9 billion and $12.96 per share in earnings.
Assuming Nvidia does hit $41 per share in earnings this fiscal year and trades at 30 times earnings, in line with the Nasdaq-100 index’s earnings multiple (using the index as a proxy for tech stocks), its stock price could hit $1,230 within a couple of years. That would be a 36% jump from current levels. However, Nvidia currently trades at 74 times earnings, and it is likely to trade at a premium valuation in the future as well thanks to its AI chip dominance.
So, it won’t be surprising to see this AI stock delivering much stronger gains than what analysts are expecting, which is why it would be a good idea to buy Nvidia following the latest earnings reports from its peers.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
