One expert thinks that Nvidia Corp. shares will be in the lead again by the end of the year, even though they had their first down quarter since 2022.
In the calendar third quarter, Nvidia’s stock NVDA 2.24% went down 2%. This was the first drop in seven straight quarterly wins. But Nvidia stock is also up more than 150% so far in 2024, with a 2.7% rise on Monday. “So, even though people still roll their eyes when you say this buy again, the setup here is still pretty darn good,” Ben Reitzes, an analyst at Melius Research, wrote and sent to clients.
He said that the stock might do better in the last few months of the year because the VanEck Semiconductor exchange-traded fund (SMH 0.16%) has made 9.4% on average over the last 14 fourth quarters, but only 2.6% on average over the last three quarters.
Because of these trends, he feels better about chip plays in artificial intelligence in general. They wrote, “We expect things to get even better by the end of the year because there are signs that AI spending on training and inference will be strong, led by Nvidia.” I see OpenAI, Microsoft MSFT -1.57%, and Google GOOG -2.47%. The companies GOOGL -2.44% and Meta META -1.87% are speeding up the release of more useful AI goods, which leads to more use and higher GPU consumption.
Reitzes is encouraged by Nvidia’s valuation on a business level. From a price-to-earnings-to-growth point of view, the stock “is still the second cheapest in our group at only ~1x conservative 2025 estimates,” he wrote.
Since Nvidia shares have gone up a lot in value over the past two years, buyers want to be sure that demand will continue to grow. They might get more information by the end of the year, and Reitzes also thinks that events early next year could help.
“We think investors will have more faith that 2026 will be a good year for growth when we hear more about how the new ‘Rubin’ chip will be better when CEO Jensen Huang talks at his GTC show in March 2025,” he wrote. “Not only will these catalysts make $5.00 in [earnings per share] power look doable, but in the long term, attention could start to shift to a much higher EPS number than that.”
Gross margins for Nvidia went down last quarter, which is something investors have been keeping a close eye on. He does believe that “we are now within about six months of a gross margin bottom and turn higher,” though.
Reitzes thinks that Nvidia’s stock is a good buy and sets a price goal of $165.
