Wall Street believes Nvidia stock can rise 30% in a year. Is it time to buy?

Wall Street analysts often have one-year price targets available for the stocks they cover. While a single analyst may have a high or low target, taking the aggregate provides useful information.

Average stock price target on Nvidia (NVDA -0.03%) the stock is $153, with a high of $200 and a low of $90. Shares of Nvidia are currently around $120, which indicates an upside of around 30%. So with this kind of growth potential in store for Nvidia, is it time to buy?

Nvidia GPUs have been central to training AI models

With the market returning an average of 10% annually, if Nvidia can deliver 30% returns, then it’s a no-brainer. It’s that simple.

But it’s never that simple.

Nvidia’s meteoric rise has been tied to massive demand for artificial intelligence (AI) computing power. Its graphics processing units (GPUs) excel at this task, and Nvidia GPUs far outperform its competitors. It is clear that the demand for AI will continue to grow, but the question is: will it be thirsty for computing power?

Eventually, the tech giants will reach an equilibrium with the demand for AI and the computing power they have available. When that happens, there will be a big demand shock for Nvidia because its GPUs won’t be in as much demand. But the question is: will this happen in the quarter, the year or the decade? No one knows the answer to that, but it looks like it will be at least a year later.

Comments from some of Nvidia’s biggest customers indicate that capital spending will increase in 2025, indicating that its GPUs will still be in high demand.

So the demand will be there for at least 2025 (for which the price target is good). But has this growth already been factored into the stock?

Nvidia’s new margins have become an integral part of the investment thesis

It’s no secret that Nvidia stock has reached a high valuation due to its expectations. It is currently trading for 42x forward earnings.

NVDA PE Ratio data (before) by YCharts

That’s not cheap, and with a price in this range, it’s also projecting strong growth ahead in the coming years.

However, one thing to watch that could sink Nvidia’s ship is its edges.

One part of Nvidia’s story that hasn’t been discussed as much as the massive demand for GPUs is its margin expansion. Since its GPUs have become hot commodities, its margins have increased.

NVDA gross profit margin (quarterly) data by YCharts

However, they have been trending lower in recent quarters, which could be noise or cause for concern. Even if Nvidia’s revenue continues to rise, if its margins return to historical levels, its profits will be cut sharply and cause its stock price to fall.

So could Nvidia stock rise 30% in the next 12 months? I would say absolutely. And if it does, it will be a fantastic stock to own. However, one thing to watch during this time is its margins. If they start to slip, don’t be surprised if the stock drops. I think Nvidia’s margins will be good through 2025, so now may be a good time to pick up some Nvidia stock while it’s on sale.