How high can the stock actually rise, 233% this year? Analysts say a lot. They expect Nvidia shares to be 31% more valuable in just a year than they are now, according to Investor’s Business Daily analysis of data from S&P Global Market Intelligence and Marquette Smith. If true, Nvidia would be worth $1.5 trillion, making it the fifth most valuable company in the S&P 500. Yes, before Tesla slipped back to eighth.
The forecast for Nvidia stock is miles ahead of the 8% gain analysts expect for Tesla next year. At this rate, Tesla would be worth only $785 billion, or only half of Nvidia’s projected value.
“US stocks rally after Nvidia’s miracle earnings reignite the AI business,” said Edward Moya of Oanda. “If AI is the future, Nvidia is the ‘flux capacitor’ that will drive the biggest shift in technology since the ‘Back to the Future’ trilogy that ended in the 1990s.”
Nvidia is giving Tesla a run for its money
Nvidia is also ahead of Tesla in terms of projected core growth.
Analysts now believe that Nvidia will make $10.82 per share in calendar 2023. That’s growth of 224%. They believe Tesla’s adjusted earnings per share this year will fall 15% to $4.92 per share.
In the next calendar year the growth of the two companies could be much closer. Nvidia’s adjusted earnings for 2024 are expected to rise 42.1%, roughly in the heat of Tesla’s projected 42.7% growth that year.
But analysts are striving to continue raising their expectations for Nvidia fast enough. They raised Nvidia’s current fiscal year EPS forecast by nearly 40% in just one month. Projections for Tesla’s current fiscal year haven’t budged during that time.
Is being the new Tesla a bad thing?
But with Nvidia’s high expectations come stratospheric ratings.
“Nvidia is the stock market’s new Tesla, blindly assigning the market a ridiculously high and unrealistic valuation,” said David Trainer of investment firm New Constructs. “We don’t deny that Nvidia is a great company, but we do point out that their assessment is beyond lofty and unwarranted.”
Based on a simple valuation metric, Nvidia trades at 251 times its adjusted earnings over the past 12 months, versus 66 times for Tesla. Both are premiums to the S&P 500, but the difference is stark. However, savvy investors know that PE ratios are not a tool for timing stocks.
Using a valuation method that applies discounted cash flows, Trainer says Nvidia will need to increase revenue by an average of 20% annually for 25 years just to justify its current share price. Now it looks easy: Nvidia’s revenue is expected to rise 100% this fiscal year.
But few high-growth companies can sustain this kind of strong growth for decades. However, Tesla’s revenue is expected to rise by approximately 23% this fiscal year. For this reason, analysts seem optimistic about Nvidia’s prospects as well as investors.
“The ridiculous valuation of Nvidia achieved in such a short period of time reminds us that ‘fear of missing out’ is alive and well, this is a very dangerous phenomenon for investors and it never ends well,” said Turner.
Nvidia beats Tesla in the S&P 500 index
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