Can Nvidia stock hit $200 in 2024?

Over the past two years, the hype surrounding the artificial intelligence (AI) boom has led to incredible operational momentum for Nvidia (NVDA -1.59%)the company that designs and manufactures most of the chips in the industry. But while business is growing, the company’s share price appears to have hit a snag. Let’s discuss why this might be happens and determine whether Nvidia stock may hit $200 before the end of the year.

Nvidia’s rocket rally fades

With shares up about 2,450% over the past five years, Nvidia has been a rewarding investment for its shareholders over the medium and long term. However, the thesis is starting to unravel as strong operating results no longer impress the market as much as they used to.

Second-quarter revenue jumps 122% year-over-year to $30 billion, driven by massive demand for Nvidia data center graphics processing units (GPU), which helps run and train AI algorithms. The company’s bottom line also remains supportive, with operating income up 174% year after year to 18.6 million dollars. Management is waiting the release of new AI hardware products based on faster and more efficient Blackwell architecture to drive customer demand in 2025 and beyond.

Nvidia’s board also approved $50 billion worth of share buybacks in the quarter, which may boost investor demand on future earnings by reducing the number of outstanding shares.

However, while these are objectively good results, Nvidia’s split-adjusted share price is down about 10% since the Aug. 28 release, suggesting many market participants believe the operating momentum is unsustainable.

Storm clouds are gathering over the AI ​​industry

There are several reasons why investors might take Nvidia’s current results with a grain of salt. For starters, the consumer-facing software side of the generative AI industry it is yet to prove its monetization potential. For example, analysts from Goldman Sachs concern that today’s AI systems simply they are not designed to solve problems complex enough to justify their costs.

And while the technology behind large language patterns (LLM) like ChatGPT keep getting better, that doesn’t necessarily mean they will Easier to monetize due to competition from free, open-source rivals such as Meta platforms Elon Musk’s Lama or Grok.

Image source: Getty Images.

There is a growing risk that AI will follow the pattern of previous hype cycles, such as the Internet or electric vehicles, where corporations overbuilt capacity in anticipation of consumer demand that did not materialize quickly. If that happens with generative artificial intelligence, the market for Nvidia’s expensive data center hardware could shrink or decline in the near term — even if the technology sees widespread adoption in the coming decades.

Nvidia’s uncertain path to $200 per share

After a 10-for-1 stock split in June, Nvidia’s modest $115 share price belies its true size. With a market capitalization of $2.84 trillion, the GPU chipmaker is already the world’s third-largest company — behind Microsoft and Apple, who are worth $3.23 trillion and $3.3 trillion, respectively.

A 73% rise to $200 should push Nvidia’s market cap to about $4.9 billion, most likely putting it at No. 1. And with a the forward price-earnings ratio (P/E) multiple of just 41, the stock certainly looks like it has more room to run given its triple-digit earnings growth.

That said, unlike the typical megacap company, which has typically built its business over decades serving established and profitable sectors of the economy, Nvidia’s business remains speculative and uncertain — earning it a low valuation. The company is unlikely to reach a share price of $200 in 2024 or soon until the software side of the AI ​​industry begins to grow own weight. And that is far from guaranteed.