This NVDA Stock Forecast article was written by Milana Ledova – Financial Analyst at I Know First.

Highlights

• Achieved 60% gross margin and 23% net margin in the first nine months of FY2024.
• ROE is 30% compared to the industry median of 12%.
• Launched NVIDIA Grace Hopper Superchips for generative AI and HPC tasks, expanding product capabilities and market positioning.

Overview

NVIDIA, pioneer in the tech industry, revolutionizing how businesses utilize computational capabilities. Famous for its advanced GPUs and SoCs, being recognized for innovation in AI, gaming, autonomous vehicles, and data centers. NVIDIA designs its products but utilizes third party partners for manufacturing and assembly, enabling the company to concentrate on its core strengths—innovative technologies and broadening market uses—unlike conventional chip makers.

Solid Performance and Outlook for NVIDIA from 2025

NVIDIA’s growth trajectory demonstrates its ongoing dominance in industries that influence the modern world. NVIDIA saw an impressive revenue growth, hitting around $50 billion in FY2024, a nearly 100% increase from the previous year. This marks a notable recovery compared to FY2023, which experienced minimal expansion. In FY2023, the Graphics segment made up 36% of overall revenue, down 51.7% from the previous year because of an excess of GPUs and decreased market demand. Networking division contributed 64% of the revenue, showing a 26.7% year-over-year growth due to high data center demand. Majority of revenue (71%) came from global markets, with Taiwan (25%), China (23%), and other areas (23%) highlighted as important markets, demonstrating NVIDIA’s worldwide reach.

Profitability was under pressure in FY2023 with a gross margin of 58%, due to $702 million in inventory charges resulting from oversupply and reduced demand forecasts, notably in the Gaming sector. Although there were gaming revenue challenges from an oversupply in the GPU market, a boost in demand for the Data Center segment helped even out the overall performance.

NVIDIA’s future, especially heading into 2025, is closely tied to its leadership in AI and computing technologies. The company is likely to sustain its growth trajectory as enterprises increasingly invest in AI infrastructure, with Data Centers expected to remain the primary growth driver. However, the outlook will also depend on broader economic conditions and NVIDIA’s ability to navigate competition in the AI and semiconductor mark. Projections for FY2025 anticipate $91 billion, driven by increased adoption of AI solutions across sectors.

Gaming accounted for 35% of revenue in FY2024, a decrease from 50% in FY2020. The contribution of gaming has declined due to changes in market dynamics. The decrease is a result of decreased demand
predictions and a less robust Asia-Pacific market because of difficult macroeconomic circumstances. Moreover, the shift from Ethereum to proof-of-stake lessened the effectiveness of GPUs in mining
cryptocurrencies. Nevertheless, NVIDIA expects an improvement in channel inventory after Q4 FY2024.

Professional Visualization accounted for 6% of revenue in FY2024, a decrease from 9% in FY2020. The section saw a decrease in sales because of decreased market interest and unsure economic conditions.
Even with temporary obstacles, NVIDIA’s strong presence in Workstation Graphics, capturing over 90% of the market, sets it up for future expansion as AI and ray tracing revolutionize design processes.

Automobile sector accounts for 6% of revenue in FY2024, remaining steady at 7% from FY2020. The automotive industry experienced continuous revenue growth, propelled by the increasing popularity of AI
solutions such as NVIDIA DRIVE Orin. Even though infotainment has been important in the past, the future will see growth in centralized car computing and software-defined vehicle architectures, showcasing NVIDIA’s leadership in autonomous driving.

OEM and Other accounted for 6% of revenue in FY2024, a decrease from the 7% in FY2020. This part keeps getting smaller due to decreased sales of Jetson items and notebook OEMs. The decrease is a result of difficulties in less important markets, which NVIDIA is now paying less attention to.

Key External Factors Affecting Business in 2024

• Implementation of AI in Various Sectors: NVIDIA’s growth is still being fueled by the fast adoption of AI technologies in industries such as cloud computing, automotive, and high-performance computing. The company’s strong presence in AI training and inference, coupled with advanced products like Grace Hopper Superchips, establishes it as a crucial facilitator of AI-driven changes. Nevertheless, the continuation of this growth hinges on how quickly AI is embraced and the competition posed by new entrants in the semiconductor sector.
• Challenges in the realms of economy and geopolitics: NVIDIA encounters challenges from worldwide economic conditions, including inflation, decreased consumer spending, and decreased demand in specific regions like the Asia-Pacific. Geopolitical tensions, especially between the U.S. and China, also affect NVIDIA’s ability to reach important markets, as 25% of its revenue comes from China. Limitations on the export of semiconductors or modifications to trade policies could have a substantial impact on its operations.Remaining in a constant state of calm is essential for maintaining good mental health.
• The dynamics of the gaming and GPU market: Gaming continues to be a major source of revenue, but it is encountering difficulties due to decreased demand, an excess of GPUs, and a decline in usefulness for cryptocurrency mining after Ethereum’s shift to proof-of-stake. It is crucial for NVIDIA to manage inventory changes and boost consumer interest to stabilize this sector.

Key Announcements in the Third Quarter

• Center of Data: The NVIDIA H100, a recent addition to the NVIDIA AI Enterprise software suite, is now in full production, with global tech partners expected to launch the initial products and services in Q4.The NVIDIA NeMo LLM Service and the NVIDIA BioNeMo LLM Service, considered the top two new AI models, will be available for early access shortly. The recently released Jetson Orin Nano system-on-module establishes a higher level for beginner edge AI and robotics, with a starting price of $199 in January 2023. Oracle Cloud Infrastructure (OCI) is incorporating numerous additional NVIDIA GPUs, such as the A100 and soon-to-be-released H100, demonstrating NVDA’s long-term collaboration with Oracle. A supercomputer powered by artificial intelligence and running on the cloud will be built through a partnership with Microsoft.
• Playing video games: The Ada Lovelace GPU architecture was widely sought after and well-received due to high demand and positive feedback. More precisely, the GeForce RTX 4090 24GB is up to four times speedier than the RTX 3090 Ti, which became unavailable in various places at a starting price of $1599. The GeForce RTX 4080 16GB offers twice the speed of the RTX 3080 Ti and surpasses the performance of the RTX 3090 Ti while consuming less power, released in Q3 FY2023 with a starting price of $1199.
• Visualization for professionals: NVIDIA OVX systems, also known as Omniverse Computing Systems, are created for constructing 3D virtual environments and running immersive digital twin simulations within NVIDIA Omniverse Enterprise.
• Car industry: Geely-owned automaker ZEEKR has chosen the NVIDIA DRIVE Thor Superchip, which offers 2,000 teraflops of performance, for its upcoming smart EVs in early 2025, with availability for other automakers’ 2025 models.

Peers comparaison

NVIDIA’s market expectations are exceptionally elevated, driven by its leadership in AI,
advanced semiconductor technologies, and strong financial growth.

NVIDIA’s valuation remains elevated, reflecting market confidence in its growth prospects and dominance in AI. Despite a high P/E ratio, the market justifies this premium based on NVIDIA’s unique positioning in transformative technologies.

NVDIA’s high valuation still surpasses the industry median, indicating strong market confidence and heightened expectations. The PE ratio still shows that investors are willing to pay a higher price for NVIDIA’s growth potential and leading position in fields such as AI and data centers. The stock price is on a strong upward trajectory in 2024, highlighting continued positive investor outlook and high demand for its stocks. The TTM Net EPS is consistently increasing, showing how NVIDIA is taking advantage of growth in AI, gaming, and data center markets. These trends affirm NVIDIA.

Optimistic communication sent through stock buyback in FY2024

After facing difficulties in the process of acquiring ARM Holdings from SoftBank, NVIDIA persisted in prioritizing shareholder value by utilizing its strong financial position. The company used its cash reserves and earnings to buy back stocks, with the goal of increasing its Earnings Per Share (EPS) by decreasing the number of shares in circulation. In the initial three quarters of FY2024, NVIDIA issued buybacks totaling $12.5 billion to shareholders, with $4.8 billion in Q3 specifically. This represented a considerable rise from the $8.83 billion bought back in the same period of FY2023:

• NVIDIA’s EPS increased from $3.27 in FY2023 to approximately $4.02 in FY2024, thanks to the company’s share repurchase initiative. This rise shows management’s dedication to enhancing shareholder gains, even while facing slower sales growth.This repurchases initiative indicates management’s strong belief in NVIDIA’s future growth opportunities. In the competitive semiconductor industry, NVIDIA’s decision to buy back shares shows their faith in the business. Despite short-term fluctuations, NVIDIA anticipates a strong recovery due to the growing usage of AI technologies and the need for enhanced GPUs and data center solutions.
• NVIDIA’s effective financial strategy, which includes robust share repurchases, sets it up for additional earnings per share expansion. The company’s ability to invest in innovation (such as AI, supercomputing) while also maintaining effective shareholder return policies is emphasized by the move.

Enormous Market Potential in 2024

NVIDIA is benefiting from the growth opportunities offered by the continuous expansion of global IT spending. Gartner, Inc. predicts that global IT spending will reach $4.9 trillion in 2024, showing a growth of 8.9% compared to 2023. Major factors driving growth are strong performance in software and IT services sectors, projected to grow by 10.2% and 6.8% due to rising need for AI, cloud computing, and digital transformation solutions.

NVIDIA is well positioned to take advantage of this increase in IT expenditure. The company’s advanced hardware and software products cover various industries including gaming, AI, healthcare, manufacturing, automotive, and others. In total, these industries make up a $1 trillion market opportunity for NVIDIA, divided as shown:

• The gaming industry is valued at $100 billion.
• NVIDIA AI Enterprise Software has increased in value to $200 billion, up
  from $150 billion in 2023, due to increased AI adoption.
• Omniverse Enterprise Software is valued at $150 billion due to consistent
  increase driven by industrial uses and digital teamwork.
• Chips & Systems: $350 billion (increased need for AI accelerators and data
  center chips).
• Automotive industry: $300 billion (growth fueled by autonomous driving
  and connected vehicles).

Moreover, NVIDIA has a unique position:

• NVIDIA’s GPUs, CUDA AI software stacks, and the NVIDIA AI Enterprise suite enable companies to utilize AI at a large scale across different sectors.
• Expanding into the Omniverse: Utilizing the NVIDIA Omniverse platform allows for digital twins and real-time collaboration in various industries such as manufacturing, logistics, and retail, leading to increased productivity and creativity.
• The expansion of NVIDIA DRIVE platforms is establishing itself as the norm for self-driving vehicles, aligning with leading automakers and demonstrating its dominance in the lucrative $300 billion market.

NVDA Stock Forecast: What the Market Says

Based on Yahoo Finance, there were 63 analysts presenting recommendation trends for the NVDA stock forecast on January 2025, among which 12 recommended Strong Buy, 47 Buy and 4 Hold. The average price target is around $173.08.

Conclusion

NVIDIA’s leadership in AI, data centers, and autonomous vehicles positions it as attractive investment for the long term. NVIDIA’s unparalleled ecosystem and market dominance in transformative technologies give it a significant edge over competitors. I take a Buy side in the stock.

It is worth paying attention that the stock-picking AI of I Know First has a high signal on the one-year market trend forecasts, supporting my position for the NVDA stock forecast. The light green for the short-term forecasts is mildly bullish, while the darker green is a strong bullish signal for the one-year forecast.

Past Success with NVDA Stock Forecast

I Know First has been bullish on the NVDA stock forecast in the past. On January 17^th, 2024 the I Know First algorithm issued a forecast for NVDA stock price and recommended NVDA as one of the best computer stocks to buy. The AI-driven NVDA stock prediction was successful on a 1-year time horizon, resulting in more than 144.25%.

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Please note-for trading decisions use the most recent forecast.