Nvidia — the star of the S & P 500 in 2023 — enters 2024 even cheaper than it was a year ago. Shares of the chipmaker, which more than tripled this year, are now valued at roughly 25 times forward earnings, down from 34 at the end of 2022, according to FactSet data. The stock’s current earnings multiple also is well below its five-year average of 39. At one point in December, Nvidia hit its lowest price-to-earnings ratio since 2019. This is all despite the stock being the best-performer in the S & P 500 this year, advancing more than 239% as AI investments sent Nvidia’s revenue and profits soaring. It’s an improbable situation that reflects an overly pessimistic outlook for the leading AI chipmaker. Indeed, the valuation paints a picture of skeptical market — one in which investors are wondering whether the fervent demand Nvidia has seen since late 2022, when ChatGPT launched and sparked this AI investment wave, can be sustained through not just next year, but through 2025. Some also may fear Nvidia’s growth will be stunted by emerging competition in the AI chip market from the likes of Advanced Micro Devices , as well as technology giants like Microsoft who buy Nvidia’s chips and now also make their own . These concerns are unlikely to dissipate overnight. But, at this point, Nvidia’s current valuation simply appears too depressed for a company that “could have years of hyper growth ahead of it,” Jim Cramer said recently. “I think the stock is mispriced,” Jim said. “I continue to want to own Nvidia, not trade it.” Nvidia set its all-time high around $504 on Nov. 20, but retreated from there and closed as low as $455.03 per share Dec. 6. At $495 per share, the stock has mostly bounced back. Still, it’s trading at roughly the same price as it was in late August. Wall Street analysts remain optimistic on Nvidia. Ninety-four percent of the analysts who cover the chipmaker have a buy-equivalent rating on its stock, and the average price target of roughly $668 per share implies about 35% upside from Thursday’s price. NVDA .SPX YTD mountain Nvidia’s year-to-date stock performance compared with the S & P 500. Multiple analysts also named Nvidia as their top pick for 2024 , including Bernstein’s Stacy Rasgon, who in a recent note called the Jensen Huang-led firm the best — “and, surprisingly, cheapest!” — chip stock to invest in the AI theme. “We understand the nervousness over their current run of success, but think you have to be there,” Rasgon wrote. Nvidia’s efforts to ramp up supply will be a key theme to watch in 2024. It has been working with its third-party partners, including Taiwan Semiconductor Manufacturing Company , to eliminate the shortages of cutting-edge AI chips that arose this year. On Nvidia’s third-quarter earnings call in late November, finance chief Colette Kress indicated supply has been improving every quarter with plans to “continuing growing all throughout next year.” Analysts expect new Nvidia products to stoke demand, helping to absorb the additional supply that comes online. Those new products include the Grace Hopper Superchip , which links together Nvidia’s bread-and-butter graphics processing units (GPUs) with its first-ever central processing units (CPUs) for use in the data center. In an attempt to expand on the company’s leading positioning training AI models with GPUs, the Grace Hopper Superchip is targeted toward running the models on a day-to-day basis. The Grace Hopper Superchip is on its way to becoming a multibillion-dollar product line, Nvidia management has said. The company started to book revenue from the GPU-and-CPU combo chip in the three months ended Oct. 29. In the second quarter of 2024, Nvidia is expected to start shipping the H200 GPU, an upgraded version of the H100, one of the AI chips in short supply this year. The H200 has more memory capacity than its predecessor, boosting its competitiveness with AMD’s new AI chip called the MI300X. AMD has forecast AI chip revenue of at least $2 billion in 2024 — a projection that impressed Wall Street at the time , but pales in comparison to Nvidia’s business. Analysts expect Nvidia’s data center division — where sales of AI chips are recorded — to generate $77.4 billion in revenue in the 12 months ending in January 2025, according to FactSet. That won’t entirely be AI chips because Nvidia’s underappreciated networking business also is housed in the data center division. Nevertheless, it shows the differences in scale between Nvidia and AMD right now. Later in 2024, investors anticipate Nvidia to announce an entirely AI chip called the B100, as part of its accelerated product launch cycle the company detailed in an October investor presentation . In naming Nvidia its top pick for 2024, TD Cowen analysts cited Nvidia’s adoption of a yearly product launch cycle, instead of every two years, arguing that will help fuel above-average growth for years to come. Another product launch on Wall Street’s radar: new AI chips specifically designed for China-based customers that comply with the tougher export restrictions implemented by the U.S. government in October and allow Nvidia to resume those sales in an important market. Nvidia has confirmed it’s working on revised AI chips for China, but no specific launch date has been disclosed. Historically, Chinese customers represented between 20% and 25% of Nvidia’s data-center revenue. While strong demand in the rest of the world is expected to offset Nvidia’s lost China sales in the short run, an inability to access the Chinese market over the long term would be problematic and represents a risk for the stock in 2024 and likely beyond. In that sense, news that Nvidia is officially restarting AI chip sales in China next year would be a favorable development. Recent comments by U.S. Commerce Secretary Gina Raimondo in an interview with Jim assuaged fears that more punitive export controls were on the immediate horizon. Still, geopolitical tensions remain something to watch for all semiconductor investors. Actions by Nvidia’s competitors in the AI chip market also are something to watch in the new year and beyond. In addition to AMD, the list also includes tech giants who make their own AI chips — specifically Club holdings Amazon , Alphabet and Microsoft , which became the latest entrant in November . Over time, Nvidia is likely cede some market share to these other players. But that’s not an issue as long as the overall AI chip pie continues to dramatically increase in size — AMD recently predicted it’ll be $400 billion by 2027 , up from $45 billion this year. Whether that comes to fruition is unclear. What is clear to us right now is, even after its monster 2023 advance, Nvidia remains worth owning in to find out. (Jim Cramer’s Charitable Trust is long NVDA. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . 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Jensen Huang, President of NVIDIA holding the Grace hopper superchip CPU used for generative AI at supermicro keynote presentation during the COMPUTEX 2023.
Walid Berrazeg | Lightrocket | Getty Images
Nvidia — the star of the S&P 500 in 2023 — enters 2024 even cheaper than it was a year ago.
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