NVIDIA AI+Robotics Dual Revolution: Stock Price Hits Record High - Should You Chase the Rally or Wai

NVIDIA’s stock has surged dramatically, driven by the AI revolution that brings unprecedented opportunities, though risks loom as well. This year, NVIDIA’s stock hit an all-time high, drawing widespread market attention. Institutions like Bank of America have raised their price targets, viewing AI and robotics revolutions as a “generational opportunity” for NVIDIA, and famed investor Stanley Druckenmiller even expressed regret over selling NVIDIA shares earlier.

However, should investors be wary of the bubble risks associated with high valuations? With competitors like AMD and Google rising quickly in the AI market, can NVIDIA maintain its moat? Should investors continue to chase the highs, or stay calm and wait for a more reasonable entry after a price pullback?

AI Revolution Wave: NVIDIA’s Comprehensive Lead

Bank of America’s “Generational Opportunity”: Has NVIDIA’s Golden Age Arrived?

In a recent report, Bank of America clearly stated that the AI market is expected to grow exponentially in the coming years and raised NVIDIA’s price target from $165 to $190. Considering NVIDIA’s closing price of $138 last Friday, this upgrade implies a potential upside of as much as 38%. Analysts at Bank of America believe that “as this chip giant continues to solidify its leadership in the market, it will present NVIDIA with a ‘generational opportunity.’”

Moreover, Bank of America predicts that by 2027, the AI accelerator market will grow from $45 billion in 2023 to $280 billion, eventually exceeding $400 billion. Tech giants like OpenAI, Google, and Meta are rapidly developing new large language models, indicating a sustained growth in computational demand. Every new generation of large language models (LLMs), especially those focusing on larger scale and better reasoning abilities, requires higher training intensity, which demands more from NVIDIA’s computational power.

Bank of America’s series of optimistic predictions reflect their confidence in NVIDIA’s future position in the AI domain. As the primary supplier of AI hardware and platforms, NVIDIA enjoys a unique advantage amid the AI revolution, particularly in data center and accelerated computing applications. Bank of America refers to this opportunity as a “generational opportunity” not merely due to a simple growth phase, but a fundamental shift in market demand structure, which will provide NVIDIA with a consistent high-growth impetus.

The Rise of the Robotics Revolution: NVIDIA’s Double Attack

Beyond AI chips, NVIDIA is making significant strides in the robotics revolution. CEO Jensen Huang has demonstrated robots for various industries on multiple occasions—from warehousing to manufacturing—with different forms and functions, aiming at broad industrial applications.

At the 2024 COMPUTEX, Jensen Huang elaborated on NVIDIA’s hardware solutions for the robotics sector, including the NVIDIA Jetson Orin and the next-gen Jetson Thor robotic supercomputer, along with the NVIDIA Omniverse platform, which trains robot skills in simulated environments. Huang emphasized, “We’ve built these platforms, acceleration libraries, and AI models, and developers and companies can use any or all parts of these stacks to build their robots.” NVIDIA not only provides hardware support but also aims for recurring software revenue through platforms like Omniverse.

A favorable trend is that more robots are now trained using demonstration videos rather than coding for each task and scenario individually. This requires vast computational resources, adding to the demand for NVIDIA’s high-performance AI supercomputers and further solidifying its market leadership. NVIDIA Omniverse is more than just a development tool; it’s seen as the operating system for robotic learning and simulation, opening a new revenue stream for NVIDIA.

Through a dual strategy of hardware and software, NVIDIA aims not only to dominate the robotics hardware market but also to achieve sustained revenue growth in software services. As Bank of America has stated, this indeed represents a “generational opportunity,” a disruptive era where NVIDIA holds a distinctly advantageous position.

Is NVIDIA’s Moat Narrowing?

Although NVIDIA remains a leader in the AI market, the rapid rise of competitors continues to challenge and pose risks to its advantages. Recently, AMD’s MI325X chip has outperformed NVIDIA’s H200 chip in certain AI tasks, while Cerebras AI’s platform, boasting over a trillion transistors, is reportedly 20 times faster than NVIDIA’s H100. These emerging competitors’ technological advancements should not be underestimated. Although they have yet to pose a significant threat to NVIDIA’s market share, they could gradually erode its moat in the future.

Moreover, Google’s Tensor Processing Unit (TPU) has been used to train its AI models, replacing NVIDIA’s chips. Similarly, Apple is using its self-developed chips for AI training. These signs suggest NVIDIA may be at risk of losing some key clients. Competitors’ rise and diverse product demands mean NVIDIA’s market dominance could be slowly eroding.

TSMC’s Pressure: Will Costs Erode NVIDIA’s Profits?

In addition to competitive pressures, NVIDIA’s supply chain represents another potential risk. TSMC, NVIDIA’s primary foundry partner, manufactures almost all of its high-performance GPUs. Although Samsung also manufactures some chips for NVIDIA, its capacity is not sufficient to fully replace TSMC.

TSMC’s role is irreplaceable in the production of high-performance GPUs for NVIDIA. While other competitors, like Samsung, do some of the production, TSMC remains essential for capacity. Thus, any price hikes from TSMC could directly affect NVIDIA’s cost control and profit performance.

Recently, TSMC announced a series of capital expenditure plans, which are likely to be passed on to customers, including NVIDIA, in the form of price hikes. Industry insiders generally expect that NVIDIA may need to accept TSMC’s price increase to maintain chip supply, which could pressure NVIDIA’s profit margins.

NVIDIA’s leadership in the AI market is prominent, but the rise of competitors like AMD and Google may gradually narrow its moat. Moreover, the cost pressures from TSMC further complicate NVIDIA’s profit outlook, making its future profitability uncertain. Whether NVIDIA can maintain its dominance amid these challenges remains to be seen.

Is NVIDIA’s Stock Price Justified?

With NVIDIA’s stock soaring, many investors are questioning its valuation’s reasonableness.

After analyzing the key factors for NVIDIA’s future development, I created a simple profit projection model based on the following assumptions:

• By the end of this year, NVIDIA’s revenue is expected to grow 111% from last fiscal year, in line with forecasts from Bank of America and TSMC’s capital expenditure plans.
• Next year, due to a higher growth base, the growth rate is projected to slow to 70%.
• Thereafter, as products from AMD and other competitors become more widespread, NVIDIA’s growth may further decelerate to 20%.
• Over the next three years, growth rates will gradually decline from 10% to 6%, reflecting the impact of increasing competition and high growth bases.
• Costs such as sales, operational expenses, and interest taxes will increase proportionally in line with revenue.

Based on these assumptions, my model projects NVIDIA’s earnings per share (EPS) to grow from $2.84 to $7.66. This starting point is close to Bank of America’s forecast of $2.87. Without discounting, the EPS over the next five years sums up to $32.15.

To calculate the present value of these earnings, we need a discount rate. Using market data, the U.S. market risk premium is 5.5%, and with the current 10-year Treasury yield at 4.09%, we arrive at a discount rate of 9.59%. Under this discount rate, the present value of the earnings over the next five years is $24.15.

Next, I estimated NVIDIA’s long-term growth rate. Considering the U.S. economy’s long-term GDP growth rate of 3.21%, I assumed NVIDIA’s long-term growth rate to be 2%, which is lower than the economic growth but still ensures growth. Based on this assumption, NVIDIA’s future cash flow present value is $59.44. Adding the previously calculated $24.15, the total value comes to $83.59. To be prudent, I rounded it down to arrive at a conservative buy-in price of $83.

This price shows a significant gap with the current market price. While Bank of America raised NVIDIA’s target price to $190, a conservative valuation suggests that NVIDIA’s stock might be overpriced. Investors could consider using a multi-asset wallet like BiyaPay, which supports transactions in U.S. and Hong Kong stock markets as well as cryptocurrencies, making it easier to monitor price trends and consider entry timing.

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In this valuation process, analysts assume NVIDIA’s growth might be challenged by other chipmakers such as AMD and Apple, who are gradually launching competitive products. These rivals could impact NVIDIA’s market share and reduce its growth rate. As one analyst put it, “I’m not someone who invests on gut feelings. Whether a stock price rises over the long term depends on whether its discounted future cash flow exceeds the current price.” This sentiment suggests that NVIDIA’s high valuation may be driven more by market sentiment than its long-term profitability.

Thus, for conservative value investors, waiting for NVIDIA’s stock to pull back to a more reasonable level might be the prudent approach. Entering the market when prices are high could expose one to significant risk during future market corrections.

Bank of America Ups Price Target to $190: What’s Fueling the Confidence?

Contrasting the conservative valuation, analysts at Bank of America remain highly optimistic about NVIDIA’s future performance, raising their target price from $165 to $190. This revision implies a 38% upside compared to NVIDIA’s closing price of $138 last Friday.

Bank of America believes the AI market will grow exponentially over the next few years, especially as large language models continue to evolve, driving persistent demand for high-performance computing chips. As a market leader, NVIDIA is well-positioned to benefit from this growth. Companies like OpenAI, Google, and Meta launch new large language models annually, and analysts think, “The demand for computing will only keep growing.” This growth will directly boost NVIDIA’s chip demand in data centers and other applications, underpinning its revenue growth in the coming years.

Although optimistic predictions from institutions like Bank of America support the current high valuation, investors should carefully consider whether they should continue chasing NVIDIA’s stock, which is close to its historical high. While Bank of America remains bullish on NVIDIA’s prospects, the risks of valuation-driven price volatility are significant. Especially in a sentiment-driven market, any external factor could lead to significant price fluctuations. For investors considering chasing the rally, a sensible approach might be to assess the risks carefully and consider gradually building a position or investing in tranches to mitigate risk.

Short-Term Stock Movement Analysis and Valuation Levels

Emotion-driven markets often come with high volatility. As analysts have mentioned, NVIDIA’s high valuation means that its stock price is more susceptible to fluctuations, especially in response to external news, such as supply chain issues or new products from competitors.

Therefore, it is crucial for investors to rationally assess the gap between NVIDIA’s current stock price and its long-term value.

While NVIDIA’s current valuation level is seen as very high, some investors believe that its future growth potential is enough to support this valuation.

From PEG Perspective: Is NVIDIA Still Attractive?

From the perspective of PEG (Price/Earnings to Growth ratio), NVIDIA’s PEG ratio is only 1.26, which appears inexpensive compared to other large tech companies. Especially when considering the prospects for continued significant growth in the AI accelerator market over the coming years, NVIDIA’s future earnings growth might further bring down this valuation metric, making it look even more attractive.

In contrast, NVIDIA’s P/E (Price/Earnings) ratio stands significantly higher than the industry average, at 61.96. This means investors are paying a higher price for every dollar of NVIDIA’s earnings. Nevertheless, considering NVIDIA’s dominant market position in the AI chip sector and the rapid growth prospects in AI and high-performance computing over the long term, some investors are still willing to pay a premium in anticipation of enjoying future earnings growth.

Short-Term Correction and Potential Valuation Adjustment

Despite the attractiveness of NVIDIA’s growth story, the market’s high valuation expectations could bring correction risks in the short term. Especially with competitors like AMD and Google gradually launching competitive products, NVIDIA’s market share may be affected, which could lead to a reassessment of its valuation.

There are two main factors that could lead to NVIDIA’s valuation correction:

1. A technological breakthrough by competitors, leading to reduced market expectations for NVIDIA’s future growth;
2. Macroeconomic factors, such as rising interest rates and tightening liquidity, which tend to exert greater pressure on high-valuation tech stocks.

Thus, for investors, a prudent approach is to evaluate risks and act cautiously amidst high valuations.

From a conservative valuation standpoint, $83 might be a reasonable long-term buying opportunity. However, Bank of America’s optimistic outlook for NVIDIA suggests that explosive growth in the AI market over the coming years will continue to create tremendous opportunities for NVIDIA, which explains why many investors are willing to chase the high. But for rational investors, chasing high prices might not be the best option; a better strategy could be waiting for a more optimal entry point after a market correction or building a position gradually to reduce overall investment risk.

Overall, NVIDIA remains a tech giant worthy of long-term attention. Its technological strength in AI and high-performance computing, along with expanding application scenarios, are crucial drivers of its future growth.