NVIDIA Corporation (NASDAQ:NVDA) stock is back near its all-time highs and Wall Street is betting on Artificial Intelligence (AI) to keep driving the stock higher.
Shares of Jen-Hsun Huang led NVIDIA Corporation (NASDAQ:NVDA) are back to the $180 levels for only the second time till date. The last time NVIDIA stock went past the $180 mark, it set a new all-time high only to see a sizeable correction from there. This rally to the $180 level again brings us to an important question; can NVDA stock keep moving to new all-time highs? Over the past few days, NVIDIA stock has got multiple price target hikes and many analysts see NVIDIA as a $200 stock. We concur with that stance as we believe that the Santa Clara, California- based company would deliver again in Q3 and happens to be a safe bet on the Artificial Intelligence (AI) boom. The analysts who have hiked their price targets have also cited the AI potential as a major catalyst for NVDA stock.
Does AI potential make NVIDIA a $200 stock?
The average analyst price for NVIDIA stock stands at $162.36, a good 10% below its last close. However, the recent price target (PT) hikes have seen analysts value the stock around $200. William Stein of SunTrust Robinson Humphrey and Citi analyst Atif Malik were among the analysts who recently hiked their NVIDIA stock price targets and both had mentioned about the company's AI prospects to be a major growth driver. Stein had raised his PT from $181 a share to $200 a share, stating that the company's recent products and customer contracts which highlight the use of AI in datacenters give a big boost to his bullish call. Stein wrote, "we see a 71% CAGR (taking sales from $830m in CY16 to $7.1B in CY20) as more appropriate, as breadth of adoption, as well as NVDA's likely share in the inference market, both grow from new developments." Citi's Atif Malik, the analyst with one of the highest PT of $210, echoed similar thoughts as he spoke about the AI market potential and said Nvidia is "widely perceived as an underdog in inferencing given architecture optionality around the use of CPU, FPGA, and TPU."
The GPU maker's AI-driven data-center segment has been its fastest growing segment which also became its second largest segment last quarter. The segment had reported a 175% YoY growth in revenues, from $151 million last year to $416 million in the last quarter. It would not come as a surprise if the AI-driven segment goes on to become NVIDIA's largest segment in future as IDC forecasts worldwide spending on Artificial Intelligence systems to reach $57.6 billion in 2021. Further, IDC suggests hardware spending in AI systems will grow at a robust CAGR of 40.4% till 2021.
With AI spending going up, many new companies are vying to capture the market for AI chips. However, experts suggest that the Jen-Hsun Huang led company will keep its technology ahead of the competition. NVIDIA also doesn't seem to rest on its early mover advantage. A latest DigiTimes report suggests the company is partnering with Taiwan-based hardware manufacturers such as Gigabyte Technology and Leadtek Research for artificial intelligence. Nvidia continues to improve the efficiency of its GPUs which increased about 10x in the last four years and is the only chipmaker which currently supports all available major machine-learning frameworks. Given all this, we have little doubt in suggesting that NVIDIA is one of the best AI growth plays today.
To sum up, NVIDIA stock has found support at its 20-day SMA after the recent correction. Investors are advised to keep an eye on the NVIDIA stock technical chart as the current Relative Strength Index (RSI) reading of the stock stands at 62.84, just a few levels away from the overbought threshold of 70. So, any further uptick could land NVDA stock in overbought territory in the coming few sessions. This would be a crucial indicator to suggest whether the stock can keep moving up from here. On the other hand, NVIDIA stock seems to have no dearth of growth drivers. Apart from AI, cryptocurrency boom despite the volatile price remains a tailwind for the stock. Barclays analyst Blayne Curtis said that cryptocurrency tailwind would extend to the next year also, which has made him raise his NVIDIA stock PT to $200. Curtis wrote, "artificial difficulty bombs are delayed until (estimated) 4Q18 as Proof-of-Stake is not ready yet. This means difficulty increases much more slowly, improving the trajectory of expected profits (holding all else equal) and likely sustains GPU sales for mining." Having said all this, given the industry trends, AI is likely to be the biggest growth driver for the Jen-Hsun Huang led company, a fact echoed by the analyst commentary. Given all the tailwinds and long-term growth drivers, NVIDIA stock still has upside potential and can keep moving higher.
Looking for fundamentally strong tech stocks like NVIDIA? Check out Amigobulls' top stock picks from the tech sector, which have beaten the NASDAQ by over 153%. Interested in automotive stock? Then, we also have our top picks from the auto sector, which have beaten the S&P 500 by a massive 283%. If you're a trader though, you should check out our daily trading ideas section for daily, free updates on the latest crossovers and other popular technical signals.