The Stock of Nvidia Tripled Last Year Due to the Excitement About Ai. As the Next Stage Unfolds, What to Expect

Despite an exceptional performance last year, numerous investors anticipate Nvidia's momentum to persist in 2024, contingent on the company's ability to fulfill its commitments to investors.

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Tech investor Paul Meeks asserts, "People will be surprised at how long this growth cycle is for Nvidia." The surge in demand for artificial intelligence positioned Nvidia prominently in 2023, with investors investing heavily in the chipmaker, propelling its shares by 239%. This surge was fueled by expectations that Nvidia's graphics processing units would empower the latest and most advanced large language models.

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Notably, Nvidia lived up to the heightened expectations, consistently surpassing estimates on AI tailwinds for several consecutive quarters. The company exhibited sustainable demand for its products, showing little indication of diminishing.

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Wall Street responded favorably to Nvidia's remarkable progress, prompting analysts to raise their price targets on the stock, accounting for future growth and designating it among their top AI choices. The consensus in both Wall Street and the investment community is that Nvidia's trajectory is an uncommon phenomenon in an industry characterized by innovation, drawing parallels to the groundbreaking moment for Apple's iPhone in the chipmaking sector.

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The term "iPhone moment" is aptly used to describe Nvidia's current situation. Analyst Karl Freund, with years of industry experience, notes that Nvidia had strategically positioned itself to capitalize on AI long before the phrase became prominent in Wall Street discourse. He compares it to the iPhone's impact on the smartphone market in 2007, suggesting that Nvidia's preparation for this AI surge has been even more comprehensive and well-executed.

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While the nature of innovation may differ from the iPhone launch or the rise of the Internet, Kim Forrest, Chief Investment Officer at Bokeh Capital Partners, underscores that the buzz around AI is not novel in an industry defined by innovators introducing the next cutting-edge tools.

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History serves as a guide, raising concerns of a potential bubble similar to the one that burst in the early 2000s, affecting unprofitable technology during the dotcom bubble. Meeks anticipates a similar phenomenon in 2025, with much of 2024 dedicated to training large language models and introducing new applications.

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Despite potential concerns about a bubble, many on Wall Street foresee continued momentum for Nvidia in 2024. The consensus is that as long as the company exceeds expectations and provides optimistic guidance, shares are likely to keep rising. The consensus price target implies another 35% upside for shares, according to Trade Algo.

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However, there is an expectation that Nvidia's growth rate may eventually decelerate, prompting investors to be cautious. Mahoney Asset Management's Ken Mahoney notes, "Their growth rate will slow down, and that’ll be a cue to start taking some chips off the table." Nevertheless, opportunities and competition in the space validate the industry's potential for sustained growth.

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As the focus shifts to 2025, industry analysts emphasize the significance of updates from Nvidia's annual GTC conference in March and competitors' progress in reducing the costs associated with inferencing. While emerging alternatives may vie for market share, few expect them to overthrow Nvidia's dominant position. Freund suggests that the market's size and growth allow others to carve out niches without challenging Nvidia's supremacy.

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"I can’t think of anything other than the iPhone that comes close to comparing to what they’ve been able to do," Freund notes. The lingering question remains: how long can Nvidia sustain its current trajectory?