Nvidia (NASDAQ: NVDA) stock could hit $500. That’s not my prediction but instead that of analysts at American financial services firm Baird.
Now, that price target represents a potential gain of nearly 130% from here, meaning that investors could more than double their money if it is achieved. This raises the question: are the shares worth considering today?
Baird’s bull case
Baird’s previous target for Nvidia was $300. However, late last month, the firm hiked it to $500 (while maintaining an Outperform rating on the stock).
Its bull case is based around the idea that Nvidia can continue to see strong growth amid the shift to AI inferencing (the process of a trained AI model applying its learned knowledge). Baird expects the adoption rate of Nvidia’s new AI chip platform Vera Rubin at frontier model companies to exceed that of its previous platform Blackwell.
Is $500 realistic?
Now analysts’ price targets need to be taken with a grain of salt. Often, they don’t come to fruition.
In this case, I’d be surprised if Nvidia was to hit $500 in the next 12 months. Looking further out though, I think it could get there in the next two to three years.
I’m bullish on Nvidia
One reason I’m bullish here is that the company is aggressively moving into the central processing unit (CPU) space (to date, most of the company’s AI success has been due to graphics processing units or ‘GPUs’). This is a big deal because agentic AI depends heavily on CPUs.
Note that Nvidia expects the performance of its Vera CPUs to significantly exceed that of x86 CPUs made by the likes of Intel and AMD. As a result, it sees them opening up an incremental $200bn total addressable market.
Another reason I’m bullish is that Nvidia’s valuation today is very low relative to the growth the company is generating. At present, the forward-looking price-to-earnings (P/E) ratio here using next year’s earnings forecast is around 17.
Yet earnings next year are projected to rise 42% year on year. So, we have a price-to-earnings-to-growth (PEG) ratio of just 0.4 (a ratio under one suggests that a stock is cheap).
A compelling proposition
Put this together and we have a company growing at a spectacular rate (85% revenue growth last quarter) with further growth potential and a low valuation. To my mind, that’s a strong set-up.
Of course, there are risks to the investment case. Increasingly, Big Tech companies are making their own AI chips so this is a situation to monitor.
A major slowdown in AI spending is another risk. This scenario could see Nvidia’s growth stall.
I’m bullish overall, however, and believe the stock is worth considering at current levels (I’ve actually been adding to my position recently). Nvidia isn’t the only AI stock I like the look of right now, though…
Should you invest £5,000 in Nvidia right now?
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Edward Sheldon owns shares in Nvidia.
