Nvidia's Valuation and Growth Prospects

Recent volatility in Nvidia's stock movements has caused some investors to grow nervous about the company's valuation. However, analysts at UBS believe that it is not yet time to take profit on the stock. They argue that Nvidia's chips, in high demand by companies for artificial intelligence technology, will continue to support its growth.

Although Nvidia stock (ticker: NVDA) has experienced some retracement leading up to its quarterly earnings report, UBS analysts remain confident that it will meet or even surpass higher expectations.

UBS analyst Timothy Arcuri stated, "NVDA is quite literally serving as the 'kingmaker' as a huge wave of capital and new financing vehicles are chasing new AI software. Enterprises are still in the early stages of struggling to access enough capacity to scale their AI operations, which likely extends well into next year."

In light of this, Arcuri has raised his target price for Nvidia stock to $540 from $475 and maintained a Buy rating. This new target is based on a price-to-earnings multiple of 30 times UBS's projected earnings per share for Nvidia in 2025.

In premarket trading on Tuesday, Nvidia stock rose by 1.8% to $445.31. Although the stock has tripled in value this year, it currently sits below its peak of over $470 achieved in July.

According to Arcuri, Nvidia is poised to increase its market share from approximately 6% in the $250 billion data-center market in 2022 to around 25% next year. He anticipates that the successor to Nvidia's current Hopper chips, tentatively named 'Blackwell,' will start ramping up production in the fourth quarter of next year and command a 40% higher average selling price compared to the current top-end H100 chip.

"For more tactical investors, it still seems premature to exit this opportunity as year-on-year comparisons won't become challenging until the end of the year," Arcuri concluded.