Nvidia (NASDAQ:NVDA) remains the hottest AI stock in the market, and remains the second-largest company by market capitalization in the world. That says a lot about this company, given its revenue relative to current market leader Apple (NADSAQ:AAPL), and just how fast the market is anticipating Nvidia will continue to grow.
24/7 Wall St. Key Points:
- Nvidia’s status as the preeminent AI stock in the market has led to a surging valuation, and a share price that continues to move toward new all-time highs.
- The question is at what level the company might entertain another stock split, and if that’s even a reasonable catalyst investors should be focused on right now.
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Indeed, Nvidia’s sky-high growth which has hovered just shy of 100% on a year-over-year basis in the past two quarters remains very robust, and all indications are that this growth can continue moving forward. So long as the company’s corporate clientele continue to order high performance chips like they’re going out of style, this is a company that could be poised for major upside over the long-term.
Of course, in order for Nvidia investors to see more capital appreciation ahead, the company will need to continue to crush earnings each and every quarter. I’m of the view that until Nvidia misses in some major way, this trend could certainly continue from here. And given the company’s track record of splitting its stock in addition to its continued rise toward new all-time highs, plenty of anticipation could build as its share price rises toward a level that would warrant another stock split.
Just what level is that, you might ask? Well, let’s dive into what could drive a split and when the company could announce it’s adding more shares to its overall share count.
Excellent Q3 Results Stoking Long-Term Bulls
Another quarter, another big beat in the books in Q3. Nvidia reported incredible revenue and earnings growth this past quarter, with top and bottom line growth rates of 94% and 111% respectively driving plenty of enthusiasm around the company’s ability to continue growing in this AI-driven market.
Importantly, overall revenue hit a new record at $35.1 billion, so even on an annualized basis, this is a company that’s trading at a trailing price-sales ratio of nearly 30-times. That’s far from cheap. But given the high-margin nature of this business, and forward growth expectations, the company’s forward price-earnings multiple comes in around 31-times. That’s more than reasonable for this company, and prices in some amount of growth degradation over time.
Accordingly, if the company can continue to outpace growth expectations in the coming quarters, and post something similar to its 2024 results next year, I wouldn’t be surprised to see this multiple at least maintained on a forward basis. With $0.81 per share in earnings reported this past quarter, and the company’s Blackwell chips still rolling out, plenty of analysts are expecting to see around $5 in earnings per share next year, which could climb to around $10 per share in 2026. At that level, assigning a 30-times multiple would provide a $300 per share price target over the coming years (and if multiples expand further, who knows how high this stock could trade).
Nvidia remains the crown jewel in the chip sector, and it’s mostly a fundamental story for now. So long as this growth trajectory continues, this is a stock investors are going to continue to buy and hold.
Stock Split Incoming?
Now, even at a $300 per share price, NVDA stock would still traditionally be a ways off from where the company has chosen to split its stock in the past. The company last announced a 10-for-1 stock split that took effect on June 10, 2024. This decision resulted in shares of Nvidia stock moving from around $1,200 per share to around $120 per share post-split, and it does appear that a four-digit per share price is where Nvidia’s board has typically begun looking at splitting its stock in the past.
In order for Nvidia to achieve $1,000 per share, the company’s growth rate would likely need to continue for at least three to four more years, and investors would need to keep the company’s current multiple in place. If nothing changes, I do think it’s entirely possible to see another split in the 2027/2028 time frame. We’ll see.
That said, this narrative really all depends on whether Nvidia can continue its breakneck pace of growth while fending off competition for chips from other custom chip makers and those providing more cost-effective solutions. For now, Nvidia chips are the best bang for the buck in the market in terms of performance, but this is a fast-moving and high-intensity innovative space. Anything can change over time, and there are certainly risks to investing in Nvidia stock at these levels.
Wall Street Thinks NVDA Stock Is a Buy
Nvidia remains a consensus buy among most analysts who cover this stock, with price targets that only seem to head in one direction – higher. Currently, the vast majority (roughly 90%) of analysts covering Nvidia rate the stock a strong buy or the equivalent, and I currently find myself in this camp. There’s simply no better AI beneficiary in the market, and I don’t anticipate this environment shifting drastically at least over the next few years.
Goldman Sachs analyst Toshiya Hari increased Nvidia’s price target to $165 from $150, maintaining a Conviction Buy rating. Multiple other analysts have reiterated positive ratings for Nvidia, reflecting strong market confidence. Cantor Fitzgerald, Oppenheimer, and Piper Sandler maintained Overweight or Outperform ratings with $175 price targets. I think such a price target is certainly reasonable. And while this company may need a few years to split its stock, I wouldn’t be surprised to see stock split talk pick up again shortly, if growth reaccelerates even higher. We’ll just have to wait and see.
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