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Should You Buy Nvidia After Its Huge Run? ETFs in Focus

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The NVIDIA (NVDA - Free Report) stock is again a blockbuster this year as it jumped 44% courtesy of high hopes from artificial intelligence (AI). A surge in Hyperscale demand and a solid uptake of AI-based smart cockpit infotainment solutions are acting as tailwinds.

The chip giant has witnessed an impressive 228.8% rally in its stock price over the past year. NVIDIA has a Zacks Rank #2 (Buy) and it is a growth stock as well as pricey too. NVIDIA’s P/E (ttm) ratio 76.13X versus the semiconductor industry’s P/E ratio of 26.53X. NVIDIA’s expected growth rate for next year is 63.17% versus the expected growth rate of 14% for the industry  and 4.96% for the S&P 500.

Despite this remarkable run, Goldman Sachs remains bullish on the company's prospects and has raised its price target for Nvidia from $625 to $800, marking a potential upside of 21% from the previous Friday's closing price. This positive outlook has driven Nvidia's stock to new heights, with its market valuation now reaching $1.7 trillion, per a Business Insider article.

Data Center Revenue Growth

Goldman Sachs analysts are confident that Nvidia's Data Center revenue will not fall in the second half of 2024, as previously anticipated. Instead, they expect a persistent uptick in Data Center revenue throughout the first half of 2025.

This positive outlook is attributed to several factors, including continued investments by major cloud service providers in generative AI infrastructure, a widening customer base, and the introduction of new product cycles.

Nvidia's reaffirmation of its conviction in growing Data Center revenue beyond CY2024, based on clear visibility into capital spending patterns among major cloud service providers.

Strong Demand for AI-Enabling GPU Chips

Goldman Sachs points to recent commentary from major cloud providers such as Amazon, Microsoft, and Alphabet as evidence that Nvidia is poised to benefit from continued spending on AI-enabling GPU chips like the H100. These cloud giants have reported increased adoption and monetization of AI-related services and products, contributing to Nvidia's growth prospects.

Other Tech Giants’ Bullish Comments Indicate Strong Market Potential

Nvidia’s competitor AMD's revised 2024 Data Center GPU revenue outlook indicates a substantial increase, further validating the market's potential. Marvell's positive comments about its optical DSP and custom compute businesses led Goldman Sachs to adjust its revenue forecasts for the Data Center segment, the IBD article indicated.

 Forward guidance from Super Micro suggests an acceleration in revenue growth, reflecting increased demand for Nvidia's products. Positive commentary on AI-related capital spending by hyperscalers, with Meta Platforms increasing its 2024 capex guidance is another factor that can boost Nvidia’s business. Goldman Sachs anticipates that Nvidia will ramp up production of its next-gen H200 hyperscaler in the second quarter of 2024.

What Does the Broker Rating Say?

Goldman Sachs is not alone in its optimism, as Bank of America also raised its price target for Nvidia to $800 last week, underscoring the belief that the demand for AI technologies remains in its booming stage and will continue to drive Nvidia's growth.

Nvidia currently has an average brokerage recommendation (ABR) of 1.22 on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell etc.) made by 39 brokerage firms. The current ABR compares to an ABR of 1.23 a month ago based on 37 recommendations.

Of the 39 recommendations deriving the current ABR, 33 are Strong Buy and three are Buy. Strong Buy and Buy respectively account for 84.62% and 7.69% of all recommendations. A month ago, Strong Buy made up 83.78%, while Buy represented 8.11%.

Consensus Price Target

Based on short-term price targets offered by 37 analysts, the average price target for Nvidia comes to $664.12. The forecasts range from a low of $410.00 to a high of $1,100.00. The average price target represents an increase of 0.38% from the last closing price of $661.60.

Any Caveat?

NVIDIA lacks on value. The stock has very high P/E and P/CF ratios. Against this backdrop, below we highlight a few NVIDIA-heavy ETFs so that investors can avoid company-specific concentration risks. After all, the semiconductor industry, as a whole, has a decent average brokerage recommendation.

ETFs in Focus

Zacks Rank #1 (Strong Buy) VanEck Semiconductor ETF (SMH - Free Report) – NVIDIA has 19.84% Focus

AXS Esoterica NextG Economy ETF (WUGI - Free Report) – NVIDIA has 18.25% Exposure

Simplify Volt RoboCar Disruption and Tech ETF (VCAR - Free Report) – NVIDIA has 14.05% Exposure

Global X Robotics & Artificial Intelligence ETF (BOTZ - Free Report) – NVIDIA has 13.29% Exposure

Zacks Rank #2 Pacer Data and Digital Revolution ETF (TRFK - Free Report) – NVIDIA has 13.09% Exposure

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