The growth story behind NVIDIA Corporation (NASDAQ: NVDA) is undeniably the greatest growth story of this generation. Actually, it became the greatest growth story of a lifetime after it briefly became the most valuable company in the world with a $3.4 trillion market cap. With a gain of well over 150% year-to-date, the question to ask in mid-2024 is whether or not NVIDIA is still the best artificial intelligence stock for the rest of 2024 and as 2025 approaches.
One analyst has recently called for NVIDIA to rise to $200 that would give NVIDIA basically a $5 trillion valuation and that would still be considerably higher than the $4+ trillion valuation another firm assigned for a Microsoft Corporation (NASDAQ: MSFT) target price.
There are many stocks within the A.I. theme that may actually have more upside based on current analyst expectations. The de factor leader in DRAM is Micron Technology, Inc. (NASDAQ: MU). Its stock has also been rocketing higher. In fact, the stock blew through the old $80 to $100 ceiling like it was butter.
MASSIVE OVERBOUGHT CONDITIONS
Before investors turn into huge Oggonomics here without regard for risk, it is important to understand just how overbought NVIDIA and its peers have become. NVIDIA reached astronomically overbought conditions before a slight pullback in the last few trading sessions. A few days will not rectify that massively overbought status.
Calling a stock massively overbought is not a reason to take all of your profits at once. It’s also not a good enough reason to short sell a stock. The saying “Markets can remain irrational for far longer than you can stay solvent” is a prime lesson. And the quantitative and value funds who decided to short sell based on unprecedented valuations in 1998 or 1999 went belly up. Ultimately, they were correct. It still didn’t save them from going under.
Investors need to consider that pointing out more upside or a safer risk profile is solely based on the snapshot in time. If any of these stock rise or fall more than their peers then the entire math and relative profiles can change as well. After all — it’s Strategic rather than perpetual.
MICRON’s DRIVERS HIGHER
When Micron’s stock hit $150 it had not even quite been three months since it was under $100. Despite being the king of DRAM and high in flash, it turns out all of these AI machines still need basic memory. Scratch that — lots of basic chips working with the rest of the systems and in the next PC-upgrade cycle. And that pulls Micron all the way up the food chain and is part of why its market cap went over $150 billion.
The analyst community has been notorious for raising NVIDIA’s price target on more or less the same news over and over for nearly two years now. The same is happening at Micron, but many analysts did not have big Buy and Outperform ratings and huge price targets for this one. After all, it slept for years. Now those base memory prices are expected to remain firm and even rise in the coming year.
Micron’s stock was up 69% YTD and 120% over the last year. There may be more gains to come. Raymond James raised Micron’s price target to $160 from $130 and maintained its Outperform rating. Wells Fargo also reiterated its Overweight rating and raised its price target to $190 from $135 — calling for more than 30% upside in the next year. based on its improved competitive position in DRAM and NAND markets.
Also in the same week a call from Stifel reiterated Micron’s Buy rating and its price target was raised to $165 from $140 based on strong memory pricing. The consensus price target of $158 for Micron still seems to have more room to run if the analyst community even comes close to repeating its campaign of price target hikes like we saw with NVIDIA as it is valued at only 15-times forward earnings. Many analysts have not updated their price targets since March or April.
SUPER MICRO NOT SO MICRO?
The second winner in the A.I. theme has been Super Micro Computer Inc. (NASDAQ: SMCI). Its stock has even outperformed NVIDIA of late. It was up 213% YTD and up 300% over the last year. The stock’s current price of $900 is still down 25% from its $1200 peak back in March. That pullback for valuation was needed and may be a lesson of a “return to some normalcy” for all stocks tied to AI.
Super Micro’s $900 current share price is still almost 20% less than the $1,059 consensus analyst price target shown by FinViz. And Super Micro is still only worth $52 billion in market cap. The most bullish analyst call comes from Loop Capital with a $1,500 price target. That said, the analyst community had been chasing Super Micro’s targets higher up when it made the run to $1,200.
Other firms with huge upside targets include Northland ($1,300), BofA ($1,280), and Argus ($1,350). Still, those targets have not been refreshed since March and April.
Super Micro may be in the case where it has to do more of a “Show Me” game with investors and analysts now that its stock has pulled back. The company raised cash via a stock sale in late 2023, and in February-2024 it raised $1.5 billion (without regard to the overallotment option) via convertible note offering.
AGAIN, CONSIDER VALUATIONS
In a rational world there would not be such a thing as a stock that rises forever. One core belief here from Oggonomics is that the Efficient Market Hypothesis is either not that efficient or it is simply dead. NVIDIA’s rise to the world’s most valuable company was after unprecedented moves that haven’t been seen for years in Apple and Microsoft.
Maybe Micron and Super Micro are better off than NVIDIA after these huge gains is right. Then again, will that ring true if NVIDIA shares were to experience a 20% or 30% correction in an attempt to return to the mean? And what collateral damage would be seen in Micron and Super Micro if NVIDIA were to actually sell off that much?
Both Microsoft and Apple still have exponentially higher revenues and stronger profits in total dollars by far over NVIDIA. Whether or not that is the case in a few years remains to be seen. Now we just have to wait and see what actually pans out versus every investor’s and analyst’s expectations.
