On February 22, 2024, Nvidia witnessed an unprecedented surge in its stock value, a feat that may stand unparalleled in the history of capitalism. By 10 a.m., the stock had skyrocketed by nearly 15%, propelling its market capitalization from \(1.66 trillion to \)1.91 trillion since the previous day’s close. This remarkable increase of $250 billion surpasses the valuations of Tesla by 40% and Oracle by 80%, while also outpacing Intel’s worth by 20%. Nvidia has emerged as a pivotal player in the investment realm, with its recent earnings report, released after the market closed on February 21, triggering a frenzy that propelled the Nasdaq 100 index to surge by 3% by mid-afternoon on the 22nd.
The financial community has responded with enthusiasm to Nvidia’s performance, as evidenced by 18 brokerage firms revising their forecasts to anticipate gains beyond the current stock price of approximately \(800 by the year’s end. Goldman Sachs raised its target to \)875, Bernstein to \(1,000, and KeyBanc to \)1,100.
The optimism surrounding Nvidia is well-founded, given its exceptional financial results and the widespread belief that its dominance in the AI sector will define the technological landscape of the millennium. In the fiscal year 2024 (ending January 31), Nvidia achieved a remarkable 126% growth in GAAP revenues, reaching \(61 billion, and saw its net income surge nearly sixfold to \)29.8 billion. The company is demonstrating an unprecedented level of operating leverage, translating to substantial earnings growth for each unit of new revenue generated. For instance, the gross margin escalation from 57% to 73% indicates that Nvidia is now earning 30% more per unit sold compared to the previous year. Moreover, despite a mere 11% increase in operating costs, excluding special items, Nvidia’s profitability has soared.
However, even amidst these spectacular achievements, the expectations for future earnings have been significantly elevated. While Nvidia’s current price-to-earnings (P/E) multiple appears reasonable, the recent surge in its share price has pushed the multiple to 64, reflecting the market’s confidence in the company’s prospects.
Looking ahead, analysts are contemplating the substantial earnings Nvidia will need to sustain to justify its current market capitalization of $1.91 trillion. Achieving a 10% annual return from Nvidia, a high-risk stock, poses a considerable challenge, especially considering the lofty expectations embedded in its stock price.
In conclusion, Nvidia’s unprecedented growth trajectory and market valuation present both opportunities and challenges, setting a high bar for the company’s future performance and profitability. As the tech giant navigates the competitive landscape and strives to maintain its impressive margins, the recent surge in its stock price underscores the formidable obstacles it must overcome to sustain its remarkable success.
