The rise of artificial intelligence (AI) over the past year or so has made Nvidia(NASDAQ: NVDA) a rock star among the Wall Street set. However, after gaining 224% over the past year (as of this writing), the stock has hit a wall, leading some investors to believe the best gains are already in the rearview mirror.
But at least one Wall Street analyst believes there's still plenty of upside ahead.
Profiting from the AI boom
Bank of America analyst Vivek Arya reaffirmed his price target of $1,100 while maintaining a buy rating on the stock. That represents potential gains for investors of 26% compared to Wednesday's closing price. The analyst addressed Nvidia's sell-off, calling it a "refreshing pause," noting it's the ninth decline of 10% or more since late 2022.
The analyst goes further, saying Nvidia's fundamentals are solid, and these periods of consolidation "tend to set the stock up for strong moves later." He reiterated his opinion that Nvidia is a "top pick."
The wall of worry
If they're looking, Nvidia investors can find plenty to worry about. There's the specter of growing competition, inflation, and historically high interest rates. These concerns, taken together, may be leading some fair-weather investors to take profits ahead of Nvidia's next earnings report -- but that could be a costly mistake.
I would suggest investors focus on what we do know. It's still early days in the evolution of AI, and adoption is proceeding at an accelerated rate. Until someone builds a better mousetrap, Nvidia is still the industry leader, and its graphics processing units (GPUs) are the gold standard for machine learning -- an established branch of AI -- with 95% of the market. It's also the GPU leader in data center operations, with a dominant 95% share of that market.
After three successive quarters of triple-digit, record-setting growth, Nvidia is forecasting another. The stock is trading for 36 times forward earnings. While that's a slight premium compared to the price-to-earnings ratio of 28 for the S&P 500, it's an attractive price in light of Nvidia's opportunity.
Should you invest $1,000 in Nvidia right now?
Before you buy stock in Nvidia, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
*Stock Advisor returns as of April 8, 2024
Bank of America is an advertising partner of The Ascent, a Motley Fool company. Danny Vena has positions in Nvidia. The Motley Fool has positions in and recommends Bank of America and Nvidia. The Motley Fool has a disclosure policy.
