Nvidia Corp. NVDA shares rebounded on Wednesday, taking the broader market higher along with it, and a portfolio manager on Wednesday weighed in on the near- and medium-term outlook for the stock.
What Happened: Ex-Google CEO Eric Schmidt recently talked up Nvidia’s stock in a video shared by Stanford University, which has since then been deleted. In the video, he was seen saying that big companies are looking to spend $20 billion, $50 billion or $100 billion on artificial intelligence data centers and the bulk of this outgo will go to Nvidia, which makes AI accelerators.
Eric Jackson, the founder and portfolio manager at EMJ Capital, said If Schmidt were right and hyper scalers were to spend $300 billion each on Nvidia over the next few years, the AI stalwart would be sold out for the next four years. The 2027 net income is estimated at $132 billion, which translates to a P/E multiple of 23 times, he noted. If the stock were to trade up to 65 times the forward P/E multiple, the company’s valuation would be $8.5 trillion and the per-share value of the stock would be $340, he said.
The portfolio manager underlined the fact that these high-return stocks are volatile. He noted that on Aug. 5, Nvidia stock traded down to 17 times forward earnings. “These volatile names have the best returns but you have to live with the 35 – 80% drawdowns,” he said.
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Why It’s Important: Nvidia has been the flagbearer of the AI revolution ever since the technology came to the forefront with the popularity of Open AI’s ChatGPT chatbot. The Jensen Huang-led company is now enjoying a near monopoly in the market for AI accelerators, given its first-mover advantage and its integrated suite of AI solutions.
That said, analysts have warned that the AI bubble could burst after remaining active for three to five years. Since technology is ever-evolving, who knows, Nvidia could end up spearheading the next technology breakthrough too. Venture Capitalist Peter Thiel said in a recent podcast that he expects AI to take something like two decades to become “super dominant” but that doesn't distract from it being a “really big deal.”
The entrepreneur expects AI to rearrange the economic, cultural and political structure of our society in extremely dramatic ways.
The immediate test for Nvidia would be its second-quarter results due Wednesday. The company is widely expected to report earnings of 64 cents per share and revenue of $28.46 billion, according to Benzinga Pro data. This compares to the year-ago's 25 cents (split-adjusted) and $13.51 billion, respectively.
In premarket trading on Thursday, Nvidia edged up 0.02% to $128.52, according to Benzinga Pro data.
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