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Nvidia Stock: Cheaper than it Was a Year Ago

Nvidia NVDA reported earnings this week and posted another quarter of stunning growth, beating analysts’ estimates on both the top and bottom line and announcing a ten-for-one stock split.

Nvidia continues to completely dominate the AI infrastructure industry, providing all the major technology businesses of the world with the GPUs and data center products required to run the extremely demanding models.

The word “dominating” almost doesn’t capture the influence this company is having on the industry, and its outrageous growth rates are truly something to behold.

Quarterly revenue of $26 billion was up 18% from the prior quarter and 262% YoY, while Data Center revenue of $22.6 billion was up 23% on the quarter and 427% on the year.

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Net income for the quarter was $14.8 billion and is up 628% YoY. To put that growth into perspective, Nvidia’s total annual revenue in 2021 was $16 billion, which is now about how much profit they make in just a quarter!

 

Can investors still buy Nvidia stock at these elevated levels?

Sometimes in the market we see growth stocks with great stories, and huge growth projections go on incredible runs in a short period, only to fall back to earth when the growth doesn’t materialize. That is not what’s happening at Nvidia.

Growth at Nvidia has already been realized with sales and earnings having already climbed many multiples over just the last year, and with more to come.  

As of right now sales for this year are expected to increase 77.6% to $108 billion, but next year’s sales growth is still fairly tepid, with forecasts of 20.5%. While this year’s estimates are lofty, analysts remain grounded as they look further out.

With just 20% growth projected for next year, we could even see more upside surprises.

When looking at relative valuations, Nvidia is actually cheaper than it was a year ago. At the beginning of 2023, NVDA was trading at a forward earnings multiple of about 90x, while today it is trading at 45.3x FY24 earnings estimates and just 36x FY25 earnings estimates.

I think investors can still safely invest in Nvidia stock based on its reasonable valuation, and future expected growth.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

 

How is Nvidia Stock Cheaper Today?

While yes, Nvidia’s stock has appreciated nearly 4x over the last year, earnings have outpaced that growth! Earnings are up nearly 6x in that time, and margins have expanded from 18.5% to 54.3%.

With those growth rates, and improved business fundamentals, you could argue that Nvidia deserves and even richer earnings multiple. 

 

Nvidia Steadily Climbing Earnings Estimates

I don’t know about other research publications, but at Zacks we have been all over Nvidia this last year. In the chart below we can see that earnings estimates began to rise in Q2 2023, and at that time it jumped onto the Zacks Rank.

It has enjoyed a Zacks Rank #1 (Strong Buy) rating for nearly that entire time, besides for occasional periods of dropping down to a Rank #2, when analysts took breaks from upgrading it.

A number of contributors here have been pounding the table about buying Nvidia stock, and if you look back, I have published a number of bullish writeups over the last year.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

 

Which Other Stocks can I buy for AI Exposure?

Even with the reasons shared here, many investors will still resist buying Nvidia stock, and I do understand the psychological difficulties with buying a stock that has rallied so much already. So, for those investors I will share my other top picks to ride the AI wave.

Alphabet GOOGL has quickly jumped near the front of the AI expansion. At its most recent developer conference, Alphabet shared a number of exciting new AI integration to its suite of products.

AI Agents, they call them, will act as an assistant across Gmail, Search, and Android devices.

Alphabet also boasts a Zacks Rank #1 (Strong Buy) rating, reflecting upward trending earnings revisions, as well as a historically discounted valuation. Trading at 22.8x forward earnings, it is below its 10-year median of 26.2x.

Additionally, Alphabet stock has been showing considerable relative strength against most of the other mega-cap technology stocks, outperforming all the Magnificent Seven excluding Nvidia in the last three months.

TradingView
TradingView


Image Source: TradingView

Another AI beneficiary with a Zacks Rank #1 (Strong Buy) rating is Arista Networks ANET.

Less well known than most of its AI counterparts, Arista Networks specializes in high-performance, software-driven network switches and routers for data centers, cloud computing, and large-scale enterprise environments.

Arista Networks plays a crucial role in the AI boom by providing the advanced networking infrastructure required for AI workloads. Its high-speed, low-latency switches and routers facilitate the efficient data flow and massive computational power needed for AI and machine learning applications.

Not everyone has missed this quiet AI-winner though, as analysts have been steadily raising earning estimates over the last year, and the stock has rallied nearly 100% over the last year.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Bottom Line

In just the last two days I have had a number of people reaching out and asking, “is it too late to buy Nvidia?” And my answer is no, it probably isn’t too late.

Of course, it would have been better to buy it last year when it was trading $200, but even at $1,045 per share there is still upside. However, with a market cap of $2.5 trillion now, the upside is unlikely to be as pronounced as when it was much smaller.

Fortunately for investors, there are additional stocks to get involved in for exposure to the AI boom, and this new technology will likely lead markets for the foreseeable future.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

NVIDIA Corporation (NVDA) : Free Stock Analysis Report

Alphabet Inc. (GOOGL) : Free Stock Analysis Report

Arista Networks, Inc. (ANET) : Free Stock Analysis Report

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Zacks Investment Research