Following Nvidia ‘s (NVDA) brilliant quarterly results and astounding guidance, we’re raising our price target on the artificial-intelligence chipmaker Thursday to $600 a share, up from $450. Nvidia’s second-quarter fiscal year 2024 earnings release is the latest sign that the generative AI boom will continue to propel the chipmaker’s stock higher, further underscoring the Club’s rare “own it, don’t trade it” mantra on this semiconductor stock. Here are three major reasons why Nvidia stock — which has amore than tripled so far in 2023 — has not finished its climb, justifying our $600-per-share price target. Valuation As the market on Thursday cheers Nvidia’s better-than-expected results and current-quarter outlook, its stock has gotten cheaper than before the print. That’s because Wall Street’s earnings estimates have been revised much higher than Nvidia stock’s more-than-3% post-earnings gain. A forward price-to-earnings (P/E) ratio is calculated by dividing a company’s stock price by its annual earnings-per-share (EPS). If the denominator — in this case, EPS — increases by a larger magnitude than the numerator, the quotient will get smaller. And that’s precisely what transpired with Nvidia on Thursday. Using Thursday’s midday price of roughly $486 per share, Nvidia stock trades at a 46.6 P/E, based on fiscal year 2024 estimates. The stock’s valuation drops further, to roughly 30 times forward earnings, based on 2025 estimates. At Wednesday’s close of $471.16 per share, Nvidia traded at a P/E of 56.3, based on 2024 estimates, and a P/E of 36.8, based on 2025 estimates. Nvidia’s five-year average forward P/E is about 40, according to FactSet. This dynamic has persisted for years, including just a few months ago in the wake of Nvidia’s standout first-quarter earnings and guidance. History shows that, in many instances, Nvidia looks expensive on estimates, and then proves to be cheaper on the actual results. That makes Nvidia’s stock rally largely an…
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