Nvidia stock has lost some momentum after the company posted stellar earnings. The pause in the stock’s push upward shouldn’t last for long, according to analysts at Melius Research.
Nvidia
shares were down 0.3% at $481.22 in early trading on Tuesday. The stock has fallen back from above $500 in the run-up to earnings last week.
Melius analyst Ben Reitzes has a Buy rating and $750 target price on Nvidia, implying a gain of more than 50% from here. He argues that Nvidia stock’s fallback looks similar to what happened with
Apple
in the period after 2009, as its valuation compressed before the market recognized the value of its services revenue in addition to its hardware sales.
“We believe Nvidia is on a much more compressed timeline vs. Apple—and already starting to show the characteristics that could warrant a sustainable multiple more in line with its Magnificent 7 peer group,” Reitzes wrote in a research note.
Nvidia shares trade at an earnings-per-share multiple of around 23 times its consensus forecast earnings for 2024, and 20 times forecast earnings for 2025, cheaper than peers like Apple and
Microsoft,
Reitzes noted.
That suggests the market is discounting an expected peak in sales over the next calendar year and is instead concentrating on the sustainable growth rate for its artificial-intelligence chips thereafter. For Reitzes, Nvidia’s networking and software revenue should provide evidence soon of its growth and margin expansion potential.
“Unlike Apple—we don’t believe it will take years for investors to figure this out,” Reitzes wrote.
The target price makes Reitzes one of the biggest bulls on Nvidia on Wall Street. The average target price is $667 across the analysts covering the company, according to FactSet. While most analysts applauded Nvidia’s results, there are still those less sure about the chip maker’s capacity for further gains.
“As far as why the stock sold off when we did have that high-quality beat, I don’t really have a great explanation other than we do think the stock is fully valued,” wrote Dave Sekera, chief U.S. market strategist at Morningstar, in a research note.
Morningstar has a $480 fair value estimate for Nvidia stock. Sekera said that while Nvidia’s results have added confidence in the company’s long-term prospects, including revenue rising to $120 billion in fiscal 2028 from $27 billion in its latest fiscal year, it is still uncertain what the overall demand for AI processors will be.
Write to Adam Clark at adam.clark@barrons.com
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