Nvidia (NVDA) stock hits new highs in 2024, boosted by demand artificial intelligence (AI) – enabled graphics processing units (GPUs). With a commanding share in the AI accelerator market, some analysts argue that any upside has already been priced in. However, investors should consider Nvidia's position in disruptive technologies, especially robotics. I remain bullish on Nvidia because of its strong cash reserves, technological leadership, and opportunities to dominate in new sectors.
One reason for my praise focuses on future technological developments – namely robotics – and Nvidia's position in this market. Nvidia's opportunity to dominate the robotics industry is significant, driven by the convergence of powerful AI algorithms, high-performance computing, and advanced sensors.
Nvidia's strategy leverages three essential components:
Universe: A powerful simulation platform that enables the creation of high-fidelity “digital twins” for robotic experimentation.
High end GPUs: Advanced hardware such as the Blackwell architecture provides the computational power necessary for AI and robotics applications.
Foundation Models: A large-scale AI architecture optimized for multi-step and cross-domain reasoning capabilities.
This ecosystem allows Nvidia to simulate, test and validate robotics applications at scale, significantly accelerating development and reducing costs. It also has a number of advantages over robotics peers like Tesla ( TSLA ), with analysts citing Nvidia's internet-scale advanced data handling, simulation capabilities in the form of the Omniverse platform, and its hardware-software synergy.
Interestingly, Nvidia is enabling the AI revolution that is making robotics much more of a reality in the very near future. And although estimates vary, the AI robotics market is poised for significant growth. Goldman Sachs predicts that the humanoid robotics market will reach $38 billion by 2035, while more bullish estimates from Ark Invest suggest a potential global revenue opportunity of $24+ trillion by the 2030s.
In short, the company's approach to combining powerful hardware, advanced simulation capabilities, and a robust AI ecosystem positions it favorably for growth in the AI robotics market. Furthermore, when combined with Nvidia's impressive cash flow and financial reserves, it's not hard to see how Nvidia could dominate.
Moreover, the financial strength of the company worsens my readiness. Nvidia's impressive quarterly revenue of $35 billionup 94% year over year, and free cash flow of $14.9 billion demonstrates its strong market position and financial health. This financial strength means Nvidia can comfortably make significant investments in long-term research and development, strategic acquisitions, and developer support on its platform.
Nvidia is actually taking a collaborative approach to robotics by partnering with multiple robotics companies rather than focusing solely on developing its own humanoid robots. This allows Nvidia to efficiently leverage its hardware-software ecosystem without spending huge amounts of money on single projects, which still have high operational risk. For example, the tech giant's partnership with Figure, a leading humanoid robotics company, sees Nvidia Isaac Sim's Omniverse being used for synthetic data generation.
AI models are trained on Nvidia's GPU, and real-time interpretation is run on Nvidia's accelerated computing modules. Interestingly, the future of robotics is fast approaching, with Nvidia set to launch its “Jetson Thor” computing platform in the first half of 2025. This advanced platform will provide the critical processing power needed to bring sophisticated humanoid robots to life. , indicating a significant level. leap forward in robotic capabilities.
Undoubtedly, the core justification for my limitation is the company's growth-adjusted valuation. The leader of the company price-to-earnings (P/E) ratio. of 46.8x for Jan 2025 is significantly lower than its P/E of 106x for Jan 2024 (using current prices), indicating strong expected earnings growth. This is supported by analyst projections of an EPS growth rate of 127.9% for fiscal year 2025, followed by 50% in 2026.
Given this incredible growth rate, Nvidia's price-to-earnings-to-growth (PEG) ratio of 1.19 (forward non-GAAP) is an attractive 34.1% below the sector median, suggesting that its fully priced growth potential. This PEG ratio is also 38% lower than Nvidia's five-year average.
Although Nvidia's valuation metrics are generally higher than the sector median (its forward P/E of 46.8x is 81.9% higher than the sector median of 25x), the company's higher growth rates and dominant position in AI chips justify the premium.
On TipRanks, NVDA comes in as a Strong Buy based on 37 Buys, three Holds, and zero Sells assigned by analysts in the past three months. The NVDA's average stock price target is $177.08, suggesting about 17% upside potential.
I'm bullish on Nvidia stock for several reasons, including the fact that its dominance in AI hardware and software positions it well to take advantage of the emerging robotics market. With $38.5 billion in cash reserves, Nvidia has plenty of resources to invest in research and development and strategic acquisitions. Furthermore, the company's collaborative approach, leveraging partnerships rather than building everything in-house, allows for efficient ecosystem expansion.
From a valuation perspective, Nvidia's forward P/E ratio of 46.8x PEG of 1.19 suggests that its growth potential is not fully priced despite the stock's strong performance. And with a strong buy rating from analysts, there's plenty of support to suggest the stock could push higher.
