AI stocks: Why the Surge? What's next for Nvidia?

 Hadar.Goldberg
 
  Hadar.Goldberg
 
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Hadar Goldberg is a talented financial journalist with a strong passion for analyzing the stock market. She has a deep understanding of financial markets and is skilled at conducting research and analysis to uncover valuable insights for her readers. Hadar is known for her ability to explain complex financial concepts in a clear and concise manner.
 

•  Jun 15 2023
   
•  216
 

stocks on the run

Some investors wait for declines to buy, some investors wait for rises to buy. Those who wait for declines claim that when the price falls the company becomes cheaper and more attractive, those who buy on the rise believe that the momentum in the share price will continue - these are two different investment approaches. The first is based more on fundamental analysis, the second on technical analysis, but of course it can be combined.

What happens, for example, if the momentum on paper as reflected in the graph is positive and the results continue to improve. What would a fundamental surgeon say then? So obviously there are investors with different methods-approaches-techniques and obviously each case is different, but a fundamental analyst will mainly look at the results and the trend going forward and then estimate the right price. If it fits even after a 100% increase, he should buy it.

All this introduction is due to a growing interest in the question - is Nvidia after an increase of more than 2 times in a few months a bubble or is it an attractive investment?

It's probably not a bubble, maybe it's still interesting for investment, we wouldn't sign it, although the analysts think so. Nvidia is not alone. All stocks in the field of AI in the broadest sense are high.

Is it a Bubble or a Boom?

The surge in AI stocks has had a lot of skeptics taking to the streets and shouting bubble, but maybe swear is too strong a word for a group of stocks with big potential gains. Artificial intelligence may change significant methods and broad processes in the labor market, production, law and in fact in almost every field and this is worth a lot of money.

Microsoft, Nvidia, AMD, Meta, Alphabet are just some of the companies whose shares have soared since the beginning of the artificial intelligence hype. On the surface, the spikes in these stocks seem out of control. Bank of America calls the rally in AI stocks a "mini-bubble".

There are some major reasons that might make you stop and think twice. First of all, valuations have risen, but they are still not in bubble territory. The Nasdaq does seem stretched to the upper end, but it is not the same case as then," said RBC.

Nvidia stock: Analysts Predict 39% Upside in 2023

Analysts predict that the Nasdaq's annual earnings per share growth will be almost 18% over the next three years, which means that the current multiple is about 1.5 times the growth rate. In other words, the PEG ratio is the ratio of the earnings multiple to the growth rate. That's not a bad number. It means Because investors pay 1.5 times for every percent of growth in profits they receive.

According to the analysts, the multipliers during the coming years are expected to be stable when both profits and share prices will rise, as more and more investors enter the investment. For example, Nvidia's stock, in their estimation, could trade at over $530 by the end of next year, an upside of 39% from the current price.

This is assuming that shares will continue to trade at the current multiple of 45 and the forecast for earnings per share of $11.84 will remain in place. The current multiples seem justified, given that the current multiple is less than Nvidia's expected 50% annual growth over the next 3 years. This is much different from a bubble like the dotcom bubble when unprofitable companies traded at high valuations for their sales expectations.

Slowdown Ahead, but Long-Term Potential Remains

AI stocks will have to stop for a breather before the gains resume. Already now they are relatively slowing down and may even see a small decrease in the near term. But this is probably not a bubble and it is possible that in the long term an investment in artificial intelligence stocks will prove itself.

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stocks on the run

Please note that the article should not be considered as investment advice or marketing, and it does not take into account the personal data and requirements of any individual. It is not a substitute for the reader's own judgment, and it should not be considered as advice or recommendation for buying or selling any securities or financial products.

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