Nvidia: An AI Champion with Enormous Potential

The AI chip manufacturer Nvidia has recorded an impressive 161% growth in its share price this year. Even more astonishing is the increase of over 2,560% in the past five years. These impressive figures have led to Nvidia being traded at 40 times its expected earnings. Investors seem convinced that the stock price has room to grow, given the disruptive potential of artificial intelligence (AI). Sebastien Naji, an analyst at William Blair, is also confident about Nvidia's future. He recently initiated coverage on Nvidia with an 'Outperform' rating and a price target of $162, implying an additional upside potential of 41% from the current price of approximately $115. Naji's argument is based on the premise that the market has not yet fully priced in Nvidia's entire addressable market volume in the semiconductor sector. The current focus is more on the graphics card market, which has traditionally been Nvidia's strong suit. However, Nvidia has also built technical expertise in other areas, including networking (through acquisitions of Mellanox and Cumulus), system engineering, and supply chain management. Naji estimates the addressable market volume for graphics cards to be about $100 million. However, the entire semiconductor market could be up to eight times larger, while the market for cloud services could be 16 times larger. It remains to be seen whether the potential of AI and specifically Nvidia will be fully realized. Nevertheless, the high valuation could limit room for error and lead to short-term fluctuations. Before purchasing Nvidia shares, you should carefully consider the valuation and potential in other markets.