Back in January, I made two predictions. The first was that artificial intelligence (AI) stocks would outperform again in 2025 and the second was that Nvidia (NASDAQ: NVDA) would hit $200 this year.
Now, I still believe AI stocks will do well this year, assuming markets don’t tank between now and its end. But is $200 still on the cards for Nvidia? Let’s discuss.
AI chip demand
Looking at the chip stock today, I still believe that $200’s possible this year. However, to hit that price level, several things will have to happen.
First, the company will have to continue to show that business performance is strong and that demand for AI chips is high. This will be really important for the stock’s momentum.
The good news here is that recent developments have been very encouraging. For a start, all the Big Tech companies have said (in their earnings) that they plan to keep spending a ton of money on AI chips in the near term.
Meanwhile, Nvidia just signed a major deal with Saudi Arabia to build AI factories in the country. As part of the deal, Nvidia will sell HUMAIN, an AI-focused subsidiary of Saudi Arabia’s Public Investment Fund (PIF), 18,000 of its high-powered AI chips with “several hundred thousand” more chips in the pipeline over the next five years.
Of course, there’s no guarantee that business performance will remain strong this year. Economic uncertainty could throw a spanner in the works and result in lower-than-expected growth between now and year end.
We can expect to hear more about the company’s business performance and outlook in Q1 earnings on 28 May. The outlook could potentially have a big impact on the share price (in either direction).
The valuation
Secondly, we’d need to see some earnings multiple expansion. This financial year (to 31 January 2026) and next, Nvidia is expected to generate earnings per share of $4.35 and $5.58 respectively. So at today’s share price of $134, the forward-looking price-to-earnings (P/E) ratio using next year’s forecast is 24 (quite low for a growth company).
For the stock to hit $200, the forward-looking P/E ratio would have to rise to around 36. I think that’s achievable (Nvidia has traded at levels much higher than this over the past few years) but there’s no guarantee it will be able to get there, of course.
Note that to get to a P/E ratio of 36, we’d need sentiment towards both AI stocks and the stock market in general to remain healthy. If sentiment towards AI stocks deteriorated, or the market tanked, it’s unlikely we’d see that kind of earnings multiple.
A 49% gain needed from here
It’s worth noting that to hit $200 this year, Nvidia would have to rise about 49%. That sounds like a big gain but it’s not a huge movement for this stock. Since 7 April, Nvidia has risen nearly 55%. In other words, it’s achieved that kind of gain in less than two months.
The fact that the stock’s capable of such explosive gains is encouraging. And it’s one reason I’m not ruling out a share price of $200 in 2025.
Given the potential gains, I think the stock is worth considering today.
This story originally appeared on Motley Fool
