Could Nvidia Stock Hit $200 in 2024?

Over the past two years, the hype surrounding the artificial intelligence (AI) boom has led to an incredible operational momentum Nvidia (NVDA -1.59%)a company that designs and manufactures most of the chips in the industry. But while business is going great, the company’s stock price seems to have hit a snag. Let’s discuss why this might be the case happen and determine whether Nvidia shares could hit $200 by the end of the year.

Nvidia’s Rocket Rally Is Expiring

With shares up about 2,450% over the past five years, Nvidia has been a worthwhile investment for its long- and medium-term shareholders. However, the thesis is starting to fall apart as strong operating results no longer impress the market as they once did.

Second-quarter revenue jumped 122% year-over-year to $30 billion, driven by strong demand for Nvidia products data center graphics processing units (GPU) to help run and train AI algorithms. The company’s net income also remains strong, with operating income up 174% year after year to $18.6 million. The board expects release new AI hardware products based on Blackwell’s faster, more efficient architecture to drive customer demand in 2025 and beyond.

Nvidia’s board also approved a whopping $50 billion worth share buyback in the quarter, which could increase investors’ claims for future earnings by lowering the number shares in circulation.

However, while these are objectively strong results, Nvidia’s split-adjusted share price is down about 10% since the August 28 data release, suggesting that many market participants believe the operating momentum is unsustainable.

Storm clouds are gathering over the AI ​​industry

There are several reasons why investors may be cautious about Nvidia’s current results. First up, the consumer-facing software side of the generative AI industry Is its monetization potential has not yet been proven. For example, analysts from Goldman Sachs worry that today’s artificial intelligence systems simply are not designed to solve problems complex enough to justify their cost.

And while the technology behind it large language models (LLM) such as ChatGPT are constantly evolving, but that doesn’t mean they will become easier to monetize it with competition from free, open-source competitors like Meta Platforms Llama, aka Elon Musk’s Grok.

Image source: Getty Images.

There’s a growing risk that AI could follow the pattern of previous hype cycles, such as the internet or electric vehicles, where corporations overbuilt their processing capacity in anticipation of consumer demand that didn’t materialize quickly. If that happens with generative AI, the market for Nvidia’s pricey data center hardware could plateau or decline in the near future—even if the technology is widely adopted in the coming decades.

Nvidia’s Uncertain Path to $200 Per Share

Following June’s 10-for-1 stock split, Nvidia’s modest $115 share price belies its TRUE size. With a market capitalization of $2.84 trillion, the GPU maker is already the third-largest company in the world – behind Microsoft AND Apple, which are worth $3.23 trillion and $3.3 trillion, respectively.

A 73% increase to $200 should boost Nvidia’s market capitalization to about $4.9 billion, likely securing the No. 1 spot. And with price to earnings forecast With a P/E ratio of just 41, the stock certainly has plenty of room to grow given its triple-digit earnings growth.

That said, unlike your typical large-cap company, which has typically built its business over decades by serving established, profitable sectors of the economy, Nvidia’s business remains speculative and uncertain — giving it a discounted valuation. The company is unlikely to hit $200 a share in 2024 or anytime soon until its AI software industry starts generating profits. own weight. And this is far from a guarantee.