Nvidia shares could reach $200 in 2025

NVIDIA (NASDAQ: NVDA) The stock's stunning rally that began towards the end of 2022 has taken a pause of late. More specifically, Nvidia shares have faced some volatility since early July, and the company's solid results in the second quarter of fiscal 2025 were not enough to breathe some life into its fortunes on the stock market.

The reasons for Nvidia's recent volatility can be attributed to concerns about slowing growth as well as the profitability of artificial intelligence (AI) after companies and governments around the world have invested heavily in the field. However, Nvidia's quarterly results and optimistic forecast make it clear that the company's impressive growth is here to stay.

Furthermore, a closer look at the consensus price target suggests that analysts expect Nvidia stock to regain momentum. According to 63 analysts covering the stock, Nvidia's median 12-month price target is $150, representing a 28% increase from current levels. However, Wall Street's projected price target of $200 suggests Nvidia stock could rise another 71% over the next year.

For this reason, shares of this semiconductor company could reach this mark in 2025.

Nvidia's dominance in AI chips will be the driving force behind the stock

Strategic consulting firm Constellation Research issued a $200 price target for Nvidia stock in June this year. The firm notes that the flagship semiconductor company enjoys several advantages that could push its shares to $200 in the coming year and even help it sustain its upswing over a longer period of time.

According to Constellation, Nvidia has managed to create high barriers to entry in the AI ​​chip market and has a robust product roadmap. However, high switching costs mean that customers locked into the company's ecosystem are unlikely to switch to a rival product anytime soon. For these reasons, the research firm estimates that Nvidia has a 24-month technology lead over its rivals in the AI ​​graphics card market.

A closer look at Nvidia's latest quarterly results shows that the company is indeed the preferred graphics card supplier for enterprises and governments looking to train and deploy AI models. The company's revenue grew an impressive 122% year over year to $30 billion in the second quarter of fiscal 2025. The data center business generated $26.3 billion in revenue in the quarter, up 154% from the same period last year.

Nvidia CEO Jensen Huang noted that demand for the company's graphics cards based on the Hopper architecture remains solid and shipments are expected to increase in the second half of the fiscal year. This is a testament to Nvidia's prominent position in the artificial intelligence graphics processing unit (GPU) market, as the company's next-generation Blackwell chips are already in customer testing and are expected to enter full production starting in the fourth quarter of the fiscal year.

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In other words, customers are still willing to buy Nvidia’s older AI chips even though the new ones are on the way. This suggests that Nvidia’s products are actually better than those of competitors like AMD And Intel. For example, Nvidia's Hopper H200 processor reportedly outperforms its AMD rival MI300X by more than 40% in AI inference applications. Considering that the H200 reportedly costs less than the MI300X, it's easy to see why Nvidia is seeing an improvement in demand for this chip even though newer chips are on the market.

Not surprisingly, Nvidia is likely to maintain its dominant position in the AI ​​chip market. This also helps the company maintain healthy pricing power and generate high margins. For example, Nvidia's non-GAAP gross margin rose 5 percentage points year over year to 75.1% last quarter.

As a result, the company's adjusted earnings rose 152% year over year to $0.68 per share, prompting analysts to raise their earnings forecasts for the current and next fiscal year.

The stock could exceed the $200 mark in 2025

The chart above shows that Nvidia's earnings could reach $4 per share in the next fiscal year (which will coincide with most of the 2025 calendar year). However, there's a good chance that earnings could surpass that mark as analysts may further raise their growth expectations due to a potentially big jump in data center revenue next year.

Let's assume that Nvidia's earnings do indeed rise to $4 per share. That would be a 41% increase over its forecasted earnings for fiscal 2025. If the stock maintains its price-to-earnings ratio of 55 at that point, the share price could rise to $220. It's worth noting that Nvidia is currently trading at a relative discount to its average price-to-earnings ratio of 72 over the past five years.

More importantly, this company can justify its valuation through impressive growth due to its strong position in the AI ​​chip market, so there's a good chance this AI stock will continue its upward trajectory and cross the $200 mark next year.

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Harsh Chauhan does not own any of the stocks mentioned. The Motley Fool owns and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.

Forecast: Nvidia Stock Could Reach $200 in 2025 was originally published by The Motley Fool