Nvidia's Valuation and Growth Potential

Volatile share movements in recent weeks have sparked concerns among investors regarding Nvidia's valuation. However, analysts at UBS believe that it is too early to cash in on the stock, thanks to the increasing demand for Nvidia's chips in artificial-intelligence technology.

As Nvidia (NVDA) prepares to release its quarterly earnings report next week, it has experienced a slight decline in gains. Nevertheless, UBS analysts remain confident that Nvidia will meet, or even surpass, the higher expectations.

UBS analyst Timothy Arcuri expressed his belief that Nvidia is currently serving as a "kingmaker" in the field of AI software, with a large influx of capital and new financing vehicles pursuing its products. He also highlighted that enterprises are still in the early stages of grappling with limited capacity for AI expansion, a situation likely to persist well into the coming year.

In light of this, Arcuri has raised his target price for Nvidia stock from $475 to $540, maintaining a Buy rating. This new target price is based on a price-to-earnings multiple of 30 times UBS's projected earnings per share for Nvidia in 2025.

In premarket trading on Tuesday, Nvidia stock rose by 1.8% to $445.31. Although it has already tripled in value this year, the stock is still below its peak of over $470 in July.

According to Arcuri, Nvidia is set to significantly increase its market share in the data-center market. While currently holding around 6% of the total $250 billion market, Arcuri predicts that Nvidia's market share will rise to approximately 25% next year. He also anticipates that the upcoming successor to Nvidia's Hopper chips, tentatively named 'Blackwell,' will begin ramping up production in the fourth quarter of next year. Furthermore, Blackwell is expected to have a 40% higher average selling price than Nvidia's current top-end H100 chip.

Arcuri emphasized that even for tactical investors, it is still too early to jump off the Nvidia train as the year-on-year comparisons won't become challenging until the end of the year.