Nvidia’s stock tripled in 2023. Can its rally continue?

What happened?

Artificial Intelligence (AI) = Nvidia?

The first name that many investors would think of when discussing the AI boom is inevitably Nvidia (NVDA).

It is no wonder that Nvidia’s share price more than tripled in 2023, with gains of 246%. 

Clearly, the wider adoption of AI has led to improved sentiment towards the stock.

According to AMD, another leader in the AI chip market, demand for data centre AI chips could grow to US$400 billion in 2027 from US$45 billion currently. 

Will Nvidia’s stock continue to do well with rising demand for its chips in 2024? Let’s dive deeper to find out. 

What investors may like about Nvidia (NVDA)

#1 Technology leader in the data centre space

Nvidia’s ascent to the leader in the high power computing and data centre sector began before the AI frenzy in 2023. 

Nvidia and AMD have been eroding Intel’s market share ever since both companies entered the data centre segment. 

The inflection point came in 2Q23 where Nvidia overtook Intel in terms of revenue from data centre. 

The advantage of adopting Nvidia’s graphic processing unit (GPU) is apparent in the age of accelerated computing, where large data sets are being processed in an efficient manner. 

Nvidia’s chips are able to process larger amounts of data at lower cost and uses energy more efficiently than the traditional central processing unit (CPU). 

Energy efficiency is an important consideration for data centre operators, as energy accounts for 60 to 70% of the total operating cost of a data centre.

#2 Clear and early beneficiary of AI proliferation

Nvidia data centre revenue was just at US$3.62 billion in the fourth quarter of fiscal year 2023. This came through mainly from selling GPU to the datacenters.

Data centre revenue then skyrocketed to US$10.3 billion in the second quarter of fiscal year 2024, aided by very strong orders for GPU AI accelerators.

The acquisition of Mellanox in 2019 was a gamer-changer for Nvidia to gain a foothold in in AI. 

Mellanox was a networking chip and switch maker supplying high performance computers before it was acquired by Nvidia. 

Nvidia utilizes Mellanox’s technology to efficiently package several GPUs into a single system for its AI customers. 

Nvidia’s CEO, Jensen Huang has commented that “Nvidia’s GPUs connected by Mellanox networking and switch technology make up the computing infrastructure of generative AI” 

#3 Nvidia also has exposure to the autos segment

Think Nvidia is all about gaming PC and AI? 

What is less talked about is Nvidia’s potential growth from the auto segment. 

The adoption of autonomous driving is set to benefit Nvidia, as these vehicles require functions like mapping, stimulation and sensors for self-driving. 

Nvidia can provide the GPU chips and software platforms to be used in these vehicles. 

Nvidia disclosed in its Investor Day 2022 that automotive technology is a $300 billion market opportunity for the company. 

This is almost as large as the GPU and server market before demand for AI chips grew strongly. 

That said, revenue from the Auto segment is still small for Nvidia currently, representing about 1.4% of its total revenue. 

However, Nvidia has a total auto design win pipeline of US$14 billion to be delivered over next six years. This represents a sharp increase from the pipeline of US$11 billion a year ago. 

This creates an opportunity for Nvidia to grow beyond just tapping the AI market. 

What investors may not like about Nvidia

#1 – Impacted by US-China tech sanctions

Nvidia has been caught in the US-China technological race, as its technology is unique and highly sought after. 

Earlier restrictions placed on Nvidia banned the sale of its H100 chip, which is being used by top AI firms such as OpenAI, to Chinese firms.

In October 2023, the US Department of Commerce updated its semiconductor export restrictions. This further restricts the processors that Nvidia is able to sell into China. 

The impact to Nvidia is likely to be significant, as the China region accounts for 21% of Nvidia’s total revenue in FY2023. 

The impact is also seen in Nvidia’s latest 4Q24 outlook commentary and outlook, where it “expects Data Centre sales to China region to decline significantly”, as a result of the latest restrictions.

What would Beansprout do?

The demand for Nvidia’s AI GPU is set to grow strongly in the coming years, as more companies adopt AI functionalities. 

Beside the strong demand for AI chips into data centres, Nvidia could also benefit from rising demand for its chips in the auto sector.

According to the data shown in the Webull App, 93% of the analysts have a Buy rating on Nvidia’s current share with an average share price target of $637 as of 8 January 2024. 

This would be more than above its current share price of $491 as of 8 January 2024. 

As such, Nvidia remains a stock to look out for in 2024 despite the strong rally in the previous year. 

Learn and invest with Webull

Webull educates and empowers you with the best-in-class tools and information to help you make better investment decisions. Join Webull’s community of like-minded investors and find out why Webull is the preferred professional trading platform for US stocks and options. 

Disclaimer: All investments involve risks and are not suitable for every investor.