Nvidia (NASDAQ: NVDA) stock has richly rewarded investors. Shares of the artificial intelligence (AI) chip and technology infrastructure leader have returned 18,300% over the last decade, transforming a modest $1,000 investment into a whopping $184,000. The S&P 500 index returned 328% over this period.
Over the last year, Nvidia stock has returned 45% through June 18, which is lower than most of its recent annual gains but still a strong gain. (The U.S. stock market was closed on Friday, June 19, for the Juneteenth holiday.)
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Data source: YCharts. *These huge gains followed the explosion of generative AI onto the tech scene after OpenAI’s launch of the ChatGPT chatbot in late 2022.
Of course, these past gains are great for investors who own the stock. But what all investors — existing and potential — in Nvidia stock really want to know is what the stock’s likely returns are in the future?
Let’s examine where Nvidia stock could be in one year, or about June 18, 2027.
Image source: Getty Images.
Economic and stock market assumptions
For this analysis, I am assuming the U.S. economy continues to grow, at least a little, and that the stock market remains at least slightly bullish. In a recession and bear market, even the stocks of wonderful, fast-growing companies, like Nvidia, usually decline. (And, by the way, that scenario should be considered a great buying opportunity.)
Relevant data points
Wall Street analysts expect Nvidia’s earnings per share (EPS) to increase 87.2% this fiscal year (fiscal 2027, ends in late January 2027), increase 39.8% next fiscal year (fiscal 2028, ends in late January 2028), and to average an annual increase of 45.5% over the next five fiscal years.
Nvidia stock is currently trading at a trailing price-to-earnings (P/E) ratio of 31.3 and a forward P/E of 23.3. Note that a forward P/E is based on Wall Street’s earnings estimates for the next year.
Nvidia stock is a downright value, making now a great time to buy. Investors would be hard-pressed to find a stock of a well-established company that’s expected to grow 5-year earnings at an average annual rate of more than 45% with a forward P/E of just 23.
Story Continues
Nvidia stock’s attractive valuation suggests that investors, as a group, are not convinced that the company’s robust growth will continue. I disagree with this assessment. The AI revolution is still in the early stages, so there is plenty of growth potential left. Granted, the large hyperscalers (tech companies that operate massive data centers) have developed AI chips tailored to specific use cases. However, none of these custom chips will replace Nvidia’s graphics processing units (GPUs) as the leading general-purpose AI chip. This is also true of chipmakers’ Advanced Micro Devices and Intel’s data center GPUs.
Why? Nvidia has developed a huge, well-entrenched ecosystem around its AI-enabling technology. It builds full-stack platforms that developers have widely adopted across many use cases. Its ecosystem makes its products “sticky.”
Conservative case 1-year Nvidia stock price target: 45% gain to $305
Nvidia stock closed at $210.69 on Thursday, June 18. I’m going to increase that number by 45% to arrive at my conservative 1-year price target of about $305.
Why the 45% increase? That’s Wall Street’s current expected 5-year earnings growth rate, and I think that, for valuation purposes, investors — especially institutional investors — place more weight on longer-term growth rates than on annual ones.
Base case 1-year Nvidia stock price target: 55%-plus gain to $327-plus
For the near-decade that I’ve been following Nvidia stock, Wall Street has underestimated its earnings growth potential. So, I think that will likely hold going forward. If the company continues to deliver robust earnings growth that beats Wall Street estimates over the next year, the stock could gain more than 45%. Let’s put the number at 55%-plus, which is still relatively conservative. This would bring Nvidia stock’s 1-year price target to $327-plus.
A key factor that could increase my 1-year Nvidia stock price target: the Chinese market situation
Nvidia has stopped selling data center AI chips to China, which had been a significant market for it until recent years. First, this was because of U.S. government export controls. However, earlier this year, the U.S. government eased export controls on Nvidia’s H200 data center chip (not its most advanced data center AI chip), but Chinese companies still have not been buying it. It’s widely believed in the tech community that the Chinese government has instructed Chinese companies to purchase AI chips from domestic companies.
Nvidia’s growth should get a notable boost if and when Chinese companies begin to buy Nvidia’s H200 chips once again. This scenario should also provide an added lift to Nvidia’s stock price. The magnitude of that lift would depend on the magnitude of sales to China.
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Beth McKenna has positions in Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, and Nvidia. The Motley Fool has a disclosure policy.
What Will Nvidia Stock’s Price Be in 1 Year? was originally published by The Motley Fool
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