Nvidia (NASDAQ: NVDA) has seen its stock rise almost 2x this year and 3.5x since the start of 2019. The stock now trades at nearly 60x projected 2021 earnings (Nvidia’s fiscal year ends in January), with 2021 earnings-per-share expected to come in at around $8.00 (vs $4.59 in 2020). Does this make the stock expensive? We do not think so, as revenues could easily grow around 1.7x by 2024, with EPS likely to grow around 2x, taking the stock to $700. Here is how this could play out.
Nvidia’s Revenues could grow by almost 1.7x from projected levels of around $14.65 billion in 2021 to $25 billion by 2024, representing a growth rate of roughly 20% per year (for context annual growth was about 30% between 2016 and 2020). Multiple trends support this continued growth. Firstly, the share of data center revenue in Nvidia’s total revenue has jumped as of Q1 2021 (37% of total revenue vs 28% in Q1 2020). The Nvidia A100 data center GPUs are top-of-the-line data analytics processors, which are used by companies in advanced data analysis and AI applications. Another plus related to this is the rising margins, as the data center business is more profitable than the gaming GPU segment, given the higher selling prices (gross margins came in at 65% in Q1 ’21 vs 58% for the same period last year). Gaming revenues also rose 27% Y-o-y in Q1 ’21, but part of this was due to Covid-19 and the related lockdowns, which forced people to stay home and led to a surge in gaming console and gaming laptop sales. However, in the gaming segment, Nvidia’s GeForce RTX graphics processor has been gaining traction and the company claims it could give Sony and Microsoft a run for their money, by making RTX-powered notebooks the most powerful gaming consoles in the world. Whether that happens or not, RTX is one of the top notebook graphics processors in the market and RTX-powered devices are bound to witness a surge in sales.
Going forward, we expect the share of data center sales in Nvidia’s total revenue to keep rising, and with it, Nvidia’s margins are also set to rise. The combined effect of growing revenues and rising margins could see Nvidia’s 1.7x revenue growth by 2024 translate into a roughly 2x growth in EPS. Net margins came in at 31% in 2018 and 35% in 2019, but the semiconductor supply glut hurt Nvidia in 2020, dragging margins to 26%. Projected margins for 2021 stand at around 33%. Further, Nvidia is already dominating the gaming processor market, and this combined with its strong data center revenue growth could help drive margins to around 40% by 2024. We expect $25 billion in revenues combined with 40% net margins to translate into a net income of around $10 billion in 2024.
Now if Nvidia’s Revenues grow 1.7x and EPS grows 2x, the forward P/E multiple will shrink to 0.5x its current level, assuming the stock price stays the same, correct? But that’s what Nvidia investors are betting will not happen! If EPS expands 2x over the next few years, instead of the P/E shrinking from around 60x presently to about 30x, a scenario where the P/E metric falls more modestly, perhaps to about 45x looks more likely. For context, Nvidia’s closest competitor AMD currently trades at a 75x forward multiple. One might assume that Nvidia’s multiple will remain lower than AMD’s, but significantly higher than the more mature competitor Intel (which currently trades at a forward P/E of 10x). This would make growth in Nvidia’s stock price by about 50% a real possibility by the end of 2023, taking it to $700.
All information on this website is of a general nature. The information is not adapted to conditions that are specific to your person or entity. The information provided can not be considered as personal, professional or legal advice or investment advice to the user.
This website and all information is intended for educational purposes only and does not give financial advice. Signal Factory is not a service to provide legal and financial advice; any information provided here is only the personal opinion of the author (not advice or financial advice in any sense, and in the sense of any act, ordinance or law of any country) and must not be used for financial activities. Signal Factory does not offer, operate or provide financial, brokerage, commercial or investment services and is not a financial advisor. Rather, Signal Factory is an educational site and a platform for exchanging Forex information. Whenever information is disclosed, whether express or implied, about profit or revenue, it is not a guarantee. No method or trading system ensures that it will generate a profit, so always remember that trade can lead to a loss. Trading responsibility, whether resulting in profits or losses, is yours and you must agree not to hold Signal Factory or other information providers that are responsible in any way whatsoever. The use of the system means that the user accepts Disclaimer and Terms of Use.
Signal Factory is not represented as a registered investment consultant or brokerage dealer nor offers to buy or sell any of the financial instruments mentioned in the service offered.
While Signal Factory believes that the content provided is accurate, there are no explicit or implied warranties of accuracy. The information provided is believed to be reliable; Signal Factory does not guarantee the accuracy or completeness of the information provided. Third parties refer to Signal Factory to provide technology and information if a third party fails, and then there is a risk that the information may be delayed or not delivered at all.
All information and comments contained on this website, including but not limited to, opinions, analyzes, news, prices, research, and general, do not constitute investment advice or an invitation to buy or sell any type of instrument. Signal Factory assumes no responsibility for any loss or damage that may result, directly or indirectly, from the use or dependence on such information.
All information contained on this web site is a personal opinion or belief of the author. None of these data is a recommendation or financial advice in any sense, also within the meaning of any commercial act or law. Writers, publishers and affiliates of Signal Factory are not responsible for your trading in any way.
The information and opinions contained in the site are provided for information only and for educational reasons, should never be considered as direct or indirect advice to open a trading account and / or invest money in Forex trading with any Forex company . Signal Factory assumes no responsibility for any decisions taken by the user to create a merchant account with any of the brokers listed on this website. Anyone who decides to set up a merchant account or use the services, free of charge or paid, to any of the Forex companies mentioned on this website, bears full responsibility for their actions.
Any institution that offers a service and is listed on this website, including forex brokers, financial companies and other institutions, is present only for informational purposes. All ratings, ratings, banners, reviews, or other information found for any of the above-mentioned institutions are provided in a strictly objective manner and according to the best possible reflection of the materials on the official website of the company.
Forex trading is potentially high risk and may not be suitable for all investors. The high level of leverage can work both for and against merchants. Before each Forex investment, you should carefully consider your goals, past experience and risk level. The opinions and data contained on this site should not be considered as suggestions or advice for the sale or purchase of currency or other instruments. Past results do not show or guarantee future results.
Neither Signal Factory nor its affiliates ensure the accuracy of the content provided on this Site. You explicitly agree that viewing, visiting or using this website is at your own risk.
