Nvidia ‘s (NVDA) AI-fueled ascent has not yet reached its apex, Piper Sandler argued Monday, echoing our view that the chipmaker’s underappreciated software business could help further boost its stock long term. Piper Sandler on Monday elevated Nvidia to its top pick among large semiconductor companies, replacing rival Advanced Micro Devices (AMD), for a host of reasons including a “substantially more compelling” stock valuation at less than 25 times forward earnings. By contrast, AMD’s forward multiple is about 33. Additionally, the Wall Street firm said Nvidia holds “significant competitive advantages” in the AI chip market compared with new entrants, such as AMD, thanks to its complementary networking and software offerings. Piper Sandler reiterated its buy-equivalent rating on Nvidia’s stock and $620 per-share price target, which implies nearly 33% upside from its Friday close. After Nvidia’s more-than-200% stock-price gain this year, investors are wondering what’s “new” about Nvidia, Jim Cramer said Monday. The answer to that question is software, Jim said, which could eventually help offset the historically boom-and-bust nature of semiconductor sales. “The world has decided [Nvidia] is a hardware company, so it deserves a hardware multiple,” Jim said. “I think that’s quite wrong. I think it deserves more than that,” he argued. Software-and-services revenue is generally seen as more predictable than cyclical hardware sales, and as a result, investors are usually willing to pay a premium for it. To be sure, Nvidia’s software-and-services business is small at the moment — it’s on pace to generate $1 billion in annualized revenue by year-end, the company said in late November. For comparison, in its fiscal year ending in January, analysts expect Nvidia’s companywide sales to be nearly $59 billion, according to FactSet. Over time, though, Piper Sandler believes software can become a “significant portion” of Nvidia’s total revenue. Software also expands Nvidia’s universe of potential revenue — sometimes referred to as its total addressable market — beyond sales of hardware, like its cutting-edge AI processors, Piper Sandler said. Nvidia’s software-and-services business includes DGX Cloud — a supercomputer accessible via web browser — and AI Enterprise, a suite of tools for companies to build their own AI applications. In particular, Piper Sandler sees AI Enterprise as a key differentiator compared with AMD, which recently launched an AI chip to rival Nvidia’s dominance on the hardware side. We added AMD, a former Club holding, to our watchlist of stocks in early October, amid growing confidence that it could be a strong No. 2 player to Nvidia in the AI chip world. Nvidia remains one of the Club’s two “own it, don’t trade it” stocks, along with Apple (AAPL), which in recent years has relied on growing services revenue to be valued as more than just a hardware company . Despite our alignment with Piper Sandler on Nvidia’s long-term software opportunity, Jim on Monday cautioned that its stock could be due for a breather. After climbing almost 15% in November alone , shares of Nvidia on Monday were on pace for their third-straight day of declines. Those losses come amid a recent rotation out of 2023’s biggest tech winners. Nvidia stock was down more than 2% in midday trading, at roughly $456 a share. “Nvidia has moved too much, and now it has to rest,” Jim said. “It just does. It has to rest — it’s OK.” NVDA YTD mountain Nvidia (NVDA) year-to-date performance. (Jim Cramer’s Charitable Trust is long NVDA . See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Visitors visit the NVIDIA booth at the 2023 Hangzhou Apsara Conference in Hangzhou, Zhejiang province, China, October 31, 2023. (Photo by Costfoto/NurPhoto via Getty Images)
Costfoto | Nurphoto | Getty Images
Nvidia‘s (NVDA) AI-fueled ascent has not yet reached its apex, Piper Sandler argued Monday, echoing our view that the chipmaker’s underappreciated software business could help further boost its stock long term.
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