United States equities have calmed down since their rally in the first quarter of 2024. The S&P 500, Nasdaq, and Russell 2000 have all dipped slightly from their previous highpoints. While market trends, such as the generative AI craze, may have been enough to lift stocks to new heights, nowadays analysts and investors are increasingly worried about how stretched trading multiples have become. This has led to my positive backdrop for Nvidia stock (NASDAQ:NVDA).
Inflation has also returns to the forefront of analysts’ minds. Economists and market analysts had expected there to be a downtick in the core consumer price index figures for March, but instead, there was a month-to-month increase of 0.4% while the Y/Y rate for the core CPI remained at 3.8%. In other words, inflation seems here to stay for some time, which casts doubt on any Q2 rate cut that some analysts were hoping for.
However, for tech heavyweights like Nvidia, a higher CPI is unlikely to slowdown the artificial intelligence-linked rush that has sent the chipmaker’s shares soaring. Since the release of the March report, NVDA shares have dipped around 2.7%, but below are 3 reasons to keep NVDA in your portfolio despite inflation concerns.
AI tailwinds persists
Nvidia continues to be the preeminent leader in the AI space, and it’s not difficult to figure out why. Nvidia’s chip design prowess and ample R&D expense, which was $7.3 billion in 2023 (27.2% of 2023 revenue) and has floated between 1/5 and 1/4 of revenue over the past few years, has allowed Nvidia to effectively snap up 81% of the market for AI chips. A lot of Nvidia’s strong earnings results this year have had to do with its A100 and H100 chips. These chips help to power the elaborate large language models (LLMs) used to train AI models that undergird advanced applications and programs.
The A100 and H100 chips were the craze of 2023, but the craze of 2024 will be Nvidia’s new Blackwell B200 GPUs, which has 208 billion transistors and could reduce cost and energy consumption by up to 25x when compared to the H100. Nvidia expects these chips to cost between $30,000 and $40,000, and despite a hefty price tag, there is still a ton of demand in the market for the latest AI-powering GPUs.
Quantum computing: Another Chapter of Growth
According to acclaimed physicist Michio Kaku, quantum computing has the potential to leapfrog generative AI since quantum computers will better approximate how human brains function. In an interview last year, Kaku famously quipped that today’s chatbots are no more than “glorified tape recorders” that just “[take] snippets of what’s on the web, created by a human, splices them together, and passes it off as if it created these things.” Agree or disagree about his characterization of generative AI, quantum computing will likely be the next big revolution in computing technology.
Good thing Nvidia has already been providing hardware and software to help make quantum computing efficient. The chipmaker’s Tensor Core GPUs already power some of the most advanced quantum simulators and algorithms. Moreover, Nvidia has developed its own quantum software development kit and platform called cuQuantum, which leverages its CUDA programming model and libraries to enable developers to create and run quantum applications on Nvidia GPUs.
As more applications become available, Nvidia will likely benefit from significant tailwinds.
Wall Street Continues to Be in Love with NVDA
Nvidia’s share price continues to amaze investors at how high it can climb. The Nasdaq has risen nearly 7% on a year-to-date perspective, and much of these gains are of course tied to Nvidia stock, which boasts a weighty market valuation above $2 trillion. Still, despite major gains in share price, the chipmaker’s forward P/E ratio is still well below where it was 12 months ago. Last March, the stock was trading at over 60.0x forward earnings. Nowadays, Nvidia stock trades around 35.5x forward earnings.
These are just some of the reasons why Wall Street is pretty happy about Nvidia stock. The overwhelming majority of the 53 analysts that cover Nvidia have given the chipmaker a “Buy” or “Strong Buy” rating, according to Koyfin. A couple weeks ago, Morgan Stanley analysts wrote in a research note that Nvidia was the “best way to get exposure to artificial intelligence” and increased their price target to $1000/share from $795/share. This implies a 13% potential upside from where NVDA currently trades.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.