Nvidia's Growth and Challenges in 2024
NVDA 
The year 2023 proved to be a remarkable one for Nvidia as its stock surged by an astonishing 237%, making it the best-performing stock among the Magnificent 7 stocks. This exceptional growth was underpinned by the rapid expansion of the company’s revenue and net income. Nvidia’s revenue witnessed an impressive 85% growth year to date, with a particularly notable tripling of sales in the third quarter. Notably, the company’s net income soared six-fold over the first nine months of the year and an astounding 13 times from the year-ago period. CEO Jensen Huang confidently conveyed to investors that all aspects of the business “are all growth engines in full throttle.”
The meteoric rise in Nvidia’s stock price and financial performance can be largely attributed to the soaring demand for AI processing power, primarily driven by the deployment of Nvidia’s chips. The company’s H100 chip, which is its most popular AI processor, has now achieved ubiquitous availability across every major cloud services platform. Furthermore, Nvidia’s recent development of the H200 chip underscores its commitment to innovation and staying at the forefront of AI chip technology. However, despite these positive developments, Nvidia faces a set of challenges that could impact its performance in 2024.
One of the foremost challenges confronting Nvidia is the heightened competition it faces from industry rivals such as Advanced Micro Devices and Intel. These competitors are rolling out AI chips that are reportedly faster and more robust than Nvidia’s H100, posing a threat to the company’s market dominance. Moreover, the issue of supply chain constraints looms large for Nvidia, particularly due to its reliance on Taiwan Semiconductor Manufacturing (TSM) for chip production. TSM is currently grappling with capacity constraints, which could potentially impede Nvidia’s ability to meet the burgeoning demand for its chips. While TSM has plans to increase its capacity by 20% next year, the lingering uncertainty regarding chip supply remains a concern for Nvidia.
The rich valuation of Nvidia’s stock is another aspect that demands investor attention. With the stock trading at 65 times earnings, 27 times sales, and 70 times free cash flow, the company’s valuation appears lofty. This, coupled with the uncertain impact of export controls on tech to China and the looming potential for a chip shortage, raises caution flags for investors considering investing in Nvidia in 2024. Therefore, while Nvidia has undoubtedly been a stellar long-term investment, investors are advised to tread carefully and consider these factors before making investment decisions in the year ahead.
The information provided is for educational and informational purposes only and should not be considered as investment advice.