Nvidia (NASDAQ:NVDA) stands at the forefront of the artificial intelligence revolution. Its stock has surged by 15% since the start of the year, which is pretty impressive compared to the 8% return seen in 2019. Analysts from S&P500 (SNPINDEX: ^GSPC) and Wall Street still believe the stock is undervalued. The current median price target is set at $267.50 per share, suggesting a potential upside of about 24% from the existing share price of $213.
Nvidia investors recently received some encouraging news from analysts on Wall Street. Here’s what you need to know.
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Nvidia to Maintain Dominance in AI Accelerator Market by 2025
Nvidia’s graphics processing unit (GPU) is the go-to standard for accelerating artificial intelligence (AI) workloads. Their systems routinely surpass other infrastructures, according to the MLPerf benchmark, which measures performance in AI training and inference tasks.
Critics have pointed out that ASICs (application-specific integrated circuits) pose a significant challenge to Nvidia’s position in AI accelerators. Several big players, like Alphabet, Amazon, Microsoft, and Meta Platform, are already designing and implementing ASICs in their data centers. Hiring in this area seems likely to keep increasing.
However, the notion that these custom AI accelerators will soon replace Nvidia GPUs seems, well, a bit far-fetched. Building custom accelerators involves creating specialized software development tools, and few companies have the necessary talent and resources to do so. Nvidia has been developing its software ecosystem since 2006, so even those with technical skills still find themselves at a disadvantage.
In a recent memo from Morgan Stanley, analyst Joseph Moore noted that customers often view competitive products as lower-cost options, but they tend to return to Nvidia. Consequently, Nvidia is projected to maintain an 86% market share in AI accelerator sales for 2025, consistent with its share in 2024.
So what does this mean? Despite the buzz around custom silicon, Broadcom indicates that ASICs did not negatively impact Nvidia’s market share last year. Yes, custom AI chips might rise in market share in the years ahead, particularly as the demand for computing grows faster than supply. But, it seems Nvidia GPUs will stand as the industry benchmark for the foreseeable future.
Spending on AI Infrastructure Exceeds Expectations
Wall Street analysts have repeatedly underestimated how much hyperscalers are investing in AI infrastructure. Initially, it was thought that the top five hyperscalers (Alphabet, Amazon, Microsoft, Meta, and Oracle) would see a 19% increase in capital expenditures by 2026. However, they now estimate a rise of over 60% this year.
Some Wall Street Experts Predict NVIDIA’s Market Cap Could Soar
Morgan Stanley analysts are particularly optimistic, predicting that capital expenditures for the big five hyperscalers will jump nearly 80% to $805 billion by 2026, followed by a 39% increase to $1.1 trillion in 2027. This is promising for NVIDIA, not only because its GPUs are the industry standard for AI accelerators, but also because they dominate the AI networking sector.
Brad Gerstner, CEO of Altimeter Capital, remarks that NVIDIA is significantly undervalued, arguing that the market is overlooking the rising demand for AI infrastructure. He predicts that NVIDIA could become the first company with a $10 trillion valuation. Meanwhile, Beth Kindig, a chief technology analyst at I/O Fund, suggests that NVIDIA could reach a $20 trillion valuation by the end of the decade. “A key reason NVIDIA can achieve this is that they’re quickening the pace of GPU generation to faster 12- to 18-month cycles, unlike custom silicon which typically takes 3 to 5 years,” she stated.
Currently, NVIDIA’s market value hovers around $5 trillion. So, if Gerstner’s forecast holds true, that suggests roughly a 100% upside, and Kindig’s prediction implies an upside of about 300%. This is indeed promising for shareholders.
Is Now the Right Time to Buy Nvidia Stock?
Before jumping to purchase Nvidia stock, you might want to keep a few things in mind:
Our analyst team for Motley Fool Stock Advisor has identified a list of 10 best stocks that investors should consider purchasing right now, and surprisingly, Nvidia isn’t included in that list. These stocks are believed to have great potential for impressive returns over the next few years.
Moreover, just to contextualize, the Nvidia rating was initiated on April 15, 2005, and if you had invested $1,000 then, you would have around $1,319,291 today. That’s a pretty remarkable return!
On a broader scale, the stock advisor has an average return of 986%, which far exceeds the S&P 500’s 207%, indicating a market-beating performance. Don’t overlook their latest Top 10 list, which offers insights into promising stocks.
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The Motley Fool has recommended the stocks of various major companies, including Nvidia. They maintain positions in these companies, making their insights significant.
