The Nasdaq Composite has made a remarkable comeback in 2023, recovering from its significant drop the previous year. With a gain of 43%, it has almost returned to its former glory, which bodes well for the year ahead. Looking at historical data, the tech-heavy index has consistently rallied in the years following a bear-market rebound, with an average gain of 19%. This suggests that the current recovery has more room for growth.
Investors searching for winning stocks often look at companies that have recently conducted stock splits, as this move is typically preceded by strong gains. One such company is Nvidia (NASDAQ: NVDA), a chipmaker that has seen substantial returns over the last decade. With a total return of 12,780%, Nvidia conducted a 4-for-1 stock split in mid-2021.
The company’s success can be attributed to advancements in the field of artificial intelligence (AI). Nvidia produces graphics processing units (GPUs) that not only enable lifelike visuals in video games but also provide the computational power required for AI systems. Parallel processing, which breaks down computationally intensive tasks into smaller chunks, allows Nvidia’s GPUs to perform complex calculations simultaneously.
The increasing adoption of AI presents a massive opportunity for Nvidia. Bloomberg Intelligence predicts that the generative AI market will grow from $40 billion in 2022 to $1.3 trillion by 2032, representing a compound annual growth rate (CAGR) of 42%. Nvidia’s recent financial results reflect this potential, with its fiscal 2024 third-quarter revenue growing by 206% year over year and its diluted earnings per share soaring by 1,274%.
Apart from AI, Nvidia has other growth drivers in its portfolio. The gaming market, which experienced a slump recently, is projected to grow from $3.65 billion in 2024 to $15.7 billion by 2029, a CAGR of 34%. Nvidia dominates as the leading provider of gaming GPUs. Additionally, the company holds a significant market share in processors used for data centers and cloud computing, both of which are expected to continue expanding.
While Nvidia’s remarkable gains in 2023 may raise concerns about its valuation, a closer look reveals a different story. The stock’s metrics of 27 times sales and 65 times earnings appear lofty, but they do not factor in Nvidia’s triple-digit growth rate. Using the price/earnings-to-growth (PEG) ratio, which indicates whether a stock is underpriced or overpriced based on its growth rate, Nvidia’s PEG ratio is less than 1, suggesting it is undervalued compared to the S&P 500.
Considering its dominant position in multiple growth markets, strong historical growth, and reasonable valuation, Nvidia is a stock to watch, especially with the expected surge in the Nasdaq in 2024.
Please note that the above article is based on the provided guidelines and does not constitute financial advice. Investors should conduct their own research before making any investment decisions.
