Nvidia stock could soar 81% if investors recognize its full potential as an AI ecosystem, rather than just a chipmaker, Evercore says
Matthew Fox Apr 17, 2024, 3:02 PM EDT
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I-HWA CHENG/AFP via Getty Images
Nvidia stock could soar 81% if investors realize that it's more than just a chip company, according to Evercore ISI.
The firm said Nvidia has morphed into an AI ecosystem play that could generate $69 per share in earnings power by 2030.
"We think investors underestimate the importance of the chip+hardware+software ecosystem that Nvidia has created," Evercore said.
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Nvidia stock still has big upside potential even after it's surged more than 200% over the past year, according to a note this week from Evercore ISI.
The firm initiated Nvidia at "Outperform" with a $1,160 price target, representing potential upside of 36% from current levels. And in its bull-case scenario, Evercore said Nvidia stock could surge to $1,540 in the next year, a jump of 81% from current levels.
Driving that lofty price target is the idea that Nvidia is much more than a chip company, but the bulk of investors still only see it as that.
"We think investors underestimate 1) the importance of the chip+hardware+software ecosystem that Nvidia has created, 2) that computing eras last 15-20 years and are typically dominated by a single vertically integrated ecosystem company, whose returns are measured in 100-to-1000 bagger range," Evercore's Mark Lipacis said.
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The key thesis behind Lipacis' bullish call is that Nvidia is an AI ecosystem play, and it's the clear leader in a new computing platform that will drive efficiency gains for years to come.
"That 'Ecosystem Play' typically captures 80% of the value created during its respective computing era, while other[s] compete for the other 20%," Lipacis said.
Lipacis expects Nvidia to capture 80% of the parallel processing market by 2030, which could be worth more than $350 billion. In such a scenario, Nvidia would have an earnings power of $69 per share by the end of the decade, compared to the company generating earnings per share of $11.93 last year.
"We believe that the Tectonic Shift to the current Parallel Processing / IoT Computing Era started 5-to-8 years ago, and that NVDA is the dominant ecosystem play in parallel processing, which is only in the beginning phases of generating outsized returns for its investors," Lipacis said.
