[ad_1]
What a difference a year makes!later Nasdaq Composite Its value fell by 33% in 2022, one of the worst market performances in more than a decade. The index has almost regained its former glory and ended 2023 with a gain of 43%.
History gives us hints about what will happen next year. Since it first began trading in 1972, tech stocks have continued to rise each year following a bear market rally, rising an average of 19%. There are no guarantees in investing, but this suggests there is more room in the current recovery.
One strategy investors use to find winning stocks is to focus on companies that have undergone stock splits in recent years. Because historically, stock split moves have been preceded by years of solid profits. One such company is Nvidia (NASDAQ:NVDA). Over the past 10 years, the stock has generated a total return of 12,780% for him, resulting in a 4-for-1 stock split in mid-2021.
The company posted a 239% return last year, but some investors are concerned about its valuation. But if you do a little digging, you’ll find evidence that the stock is cheaper than you might think by any measure.
AI catalyst
Recent advances in the field of artificial intelligence (AI) have been a boon for Nvidia. More specifically, generative AI has proliferated in the last year, with these algorithms being applied to a variety of mundane and time-consuming tasks to improve productivity. Increased efficiency generally translates into increased profits, and companies are rushing to integrate AI models into their operations to reap the anticipated benefits.
So why is this important to Nvidia? After all, the company makes the gold standard in graphics processing units (GPUs), capable of providing the computing power needed to render realistic images in video games. It can also provide the computational power needed to support AI systems. All of this is made possible through parallel processing, which splits compute-intensive jobs into smaller, more manageable chunks, allowing GPUs to perform many complex mathematical calculations simultaneously.
As a result, Nvidia processors are being deployed in a wide range of applications, including cloud computing and data centers, where they serve as hubs for many AI systems.
Accelerating the adoption of AI plays to Nvidia’s strengths, and while predictions vary widely, there is general agreement that the opportunity is tremendous. According to a report by Bloomberg Intelligence, the generated AI market will grow from $40 billion in 2022 to $1.3 trillion by 2032, with a compound annual growth rate (CAGR) of 42%. It is expected that
The proof is in the pudding
A quick look at Nvidia’s recent achievements helps illustrate the possibilities offered by AI. In the third quarter of fiscal 2024 (ending October 29), Nvidia’s revenue increased 206% year-over-year to $18.1 billion, a company record, while diluted earnings per share (EPS) increased to $1,274. % increase to $3.71. These percentages are partially skewed by easy comps due to the slowdown in the tech sector in 2022, but they help illustrate the size of the opportunity.
Investors shouldn’t expect the company’s triple- or quadruple-digit profits to continue for long, but continued growth should be solid nonetheless. For the ongoing fiscal fourth quarter, management expects further record performance, with sales at the midpoint of the guidance range of $20 billion (up 230% year-over-year) . This shows that the opportunity for AI is far from over.
There’s more good news. NVIDIA is the undisputed market leader for chips used in machine learning, an established area of AI, controlling an estimated 95% of the market, according to New Street Research.
As the default provider of processing solutions for AI, Nvidia is well-positioned to ride this long-term tailwind.
the match is starting
While the outlook for AI is interesting, Nvidia has several other growth drivers in store. For example, the recent downturn in the gaming market is starting to change. According to market research firm Mordor Intelligence, the global gaming graphics card market is expected to grow from $3.65 billion in 2024 to $15.7 billion by 2029 at a CAGR of 34%. As a leading provider of gaming GPUs, this long-term tailwind will also boost his Nvidia.
NVIDIA is also a leading provider of processors used to compress data around Ethernet and data centers, with an estimated 95% of that market, said Angelo Zino, an analyst at CFRA Research. Digital transformation shows no signs of slowing down, and the data center boom is likely to continue as companies move more workloads and business systems to the cloud. According to Prescient and Strategic Intelligence Market Research, the data center market is expected to grow from $263 billion in 2022 to $603 billion by 2030 at a CAGR of approximately 11%.
All of this shows that Nvidia’s chips are much more than just the gold standard for AI. Its products are also the semiconductor of choice in the gaming, cloud computing, and data center markets.
800lb GPU Gorilla
After Nvidia stock rose more than 200% in 2023, investors are understandably nervous about its valuation, but there’s a catch.
The company’s stock currently trades at 27 times sales and 65 times sales, which are high indicators that confirm investors’ concerns. However, these measurements don’t take into account his triple-digit growth rate at Nvidia. For companies that are expanding this rapidly, a better metric to use is the price-to-earnings (PEG) ratio. In the case of NVIDIA, the price-to-earnings (PEG) ratio is less than 1, which is a measure of an undervalued stock.for S&P500, The PEG ratio is above 2, which puts Nvidia in an even better valuation situation.
Given its dominant position in many growing markets, strong growth history, and reasonable valuation, NVIDIA is one of the split-stock stocks investors should buy ahead of the expected Nasdaq rally in 2024. is.
Should you invest $1,000 in Nvidia right now?
Before buying Nvidia stock, consider the following:
of Motley Fool Stock Advisor Our analyst team has identified what they believe Best 10 stocks What investors can buy right now…and Nvidia wasn’t among them. These 10 stocks have the potential to generate impressive returns over the next few years.
stock advisor We provide investors with an easy-to-understand blueprint for success, including guidance on portfolio construction, regular updates from analysts, and two new stocks every month.of stock advisor Since 2002, the service has more than tripled S&P 500 returns*.
See 10 stocks
*Stock Advisor returns as of December 18, 2023
Danny Vena holds a position at Nvidia. The Motley Fool has a position in and recommends Nvidia. The Motley Fool has a disclosure policy.
History Says the Nasdaq Will Soar in 2024: 1 Great Split Stock to Buy Before It Happens” was originally published by The Motley Fool.
[ad_2]
Source link
