“This
is
not
the
path
of
your
typical
company,”
says
Morningstar
equity
strategist Brian
Colello.
“The
business
has
transformed
remarkably
in
just
a
few
quarters.”
It’s
extremely
uncommon
“for
an
already-large
established
business
to
grow
300%
per
year,
500%
per
year
in
certain
parts,”
he
adds.
Nvidia’s
unprecedented
growth
has
continually
surprised
Wall
Street
veterans.
Analysts
say
it’s
very
possible
the
stock
can
keep
running
higher.
Can
Nvidia
Stock
Keep
Climbing?
While
risks
always
exist,
Colello
points
to
a
handful
of
reasons
to
be
confident
about
Nvidia’s
growth
prospects.
First,
he
says,
much
of
Nvidia’s
revenue
comes
from
the
largest
tech
companies
in
the
world,
which
are
racing
to
offer
cloud
computing
services
to
their
customers.
Nvidia’s
technology
is
an
essential
part
of
that
service.
“These
are
trillion-dollar
companies,
to
begin
with,”
he
explains.
“They’re
the
companies
that
can
afford
it.”
Second,
Colello
points
out
that
all
the
hype
surrounding
AI
is
translating
into
real-world
investments.
“We
don’t
think
this
is
an
area
where
[companies]
are
going
to
skip
out
on
development
and
risk
falling
behind,”
he
says.
Third,
there’s
a
place
for
AI
technology
both
when
times
are
good
and
bad.
If
business
is
booming,
companies
are
willing
and
able
to
invest
in
AI
as
an
important
tool
for
the
future.
If
business
isn’t
as
good,
companies
may
turn
to
AI
to
reduce
inefficiencies
and
cut
costs.
Here
are
five
charts
that
show
Nvidia’s
strong
growth
under
the
hood,
and
the
ways
the
company
is
continuing
to
drive
returns
for
investors.
Right
now,
Morningstar
analysts
consider
Nvidia
stock
to
be
fairly
valued,
meaning
its
market
price
is
in
line
with
our
assessment
of
its
intrinsic
value.
But
Colello
says
that
could
change
quickly:
“It
would
not
surprise
me
if
a
year
from
now,
this
is
a
thousand-dollar
stock
or
more.”
Nvidia
may
remain
the
most
dominant
player
in
the
space
and
continue
to
pull
in
tens
of
billions
more
from
the
biggest
tech
companies
each
year.
In
that
case,
“they
will
earn
enough
to
justify
today’s
price,
and
it
might
be
cheap,”
according
to
Colello.
The
risk
to
this
outlook
is
that
other
cloud
companies
will
continue
to
look
for
ways
to
retain
or
gain
footing
in
the
market.
That
would
put
a
dent
in
Nvidia’s
dominance
and
the
outlook
for
its
stock.
Nvidia’s
Contribution
to
Market
Growth
Source:
Morningstar
Direct,
February
22,
2024
Even
among
the
“Magnificent
Seven,”
Nvidia
stands
apart
as
one
of
the
most
powerful
drivers
of
the
entire
stock
market’s
returns.
The
stock
contributed
13%
of
returns
to
the Morningstar
US
Large-Mid
Cap
Index over
the
past
year,
and
16%
over
the
past
two
years.
Since
January
1,
2022,
it
has
contributed
a
staggering
31.5%
of
that
index’s
returns.
When
the
stock
is
rising,
that
concentration
can
be
good
for
the
market
overall.
But
when
it’s
falling,
it
can
mean
outsize
losses.
“As
it’s
become
a
larger
portion
of
the
market,
changes
in
its
price
will
also
skew
the
broad
market’s
average,”
says Dave
Sekera,
Morningstar’s
chief
US
market
strategist.
The
Magnificent
Seven’s
2-Year
Earnings
Growth
Source:
PitchBook
Data,
February
23,
2024
Over
the
past
two
years,
Nvidia
has
seen
192%
earnings
growth,
far
more
than
any
of
its
peers
in
the
Magnificent
Seven.
That
strong
growth
has
sent
its
stock
soaring.
Nvidia’s
data
centre
business
is
“the
only
segment
that
should
matter
to
investors,”
writes
Colello.
This
includes
the
graphics
cards
that
are
used
in
generative
AI
applications.
Revenue
for
the
segment
has
risen
from
$3
billion
in
fiscal
2020
to
$47.5
billion
in
fiscal
2024,
a
jump
of
nearly
1,500%.
Next
year,
Colello
is
projecting
data
center
revenues
of
$101
billion,
double
this
year’s
figure.
He
points
to
evidence
of
strong,
lasting
demand
for
AI
technology
to
support
his
forecast,
which
he
describes
as
sustainable.
All
that
revenue
is
translating
into
profit
for
Nvidia
and
its
shareholders.
The
company’s
adjusted
earnings
per
share
have
risen
from
$3.34
in
the
2022
fiscal
year
to
nearly
$13
in
the
2024
fiscal
year.
Colello
expects
earnings
per
share
of
roughly
$26.50
in
the
next
fiscal
year.
Risks
to
Nvidia’s
Outlook
An
unprecedented
story
like
Nvidia’s
also
brings
unprecedented
risks.
Morningstar’s
equity
analysts
assign
the
stock
a
Very
High
Uncertainty
Rating,
meaning
it’s
relatively
difficult
to
pinpoint
its
exact
fair
value.
That’s
no
surprise,
since
“the
competitive
landscape
in
AI
seems
to
be
changing
almost
weekly,”
Colello
writes.
He
notes
that
investors
shouldn’t
rule
out
the
threat
of
competition
from
other
chipmakers
or
cloud
companies,
or
the
possibility
that
AI
investment
could
slow
down.
“To
some
degree,
right
now
[Nvidia]
is
a
story
stock,”
says
Sekera.
“There’s
still
a
lot
more
potential
upside,
depending
on
how
AI
develops
over
the
next
few
years.
But
that
also
applies
to
the
potential
downside.”
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