Wall Street's "Goldbach Conjecture": How to predict and price NVIDIA?

The outbreak of artificial intelligence has undoubtedly made NVIDIA one of the most dazzling stars.

However, as sales soar, the rapid growth of NVIDIA's revenue has made its forecasting and valuation increasingly a headache for Wall Street analysts, a "Goldbach Conjecture".

According to data compiled by foreign media, over the past five quarters, analysts' average revenue forecasts for NVIDIA have deviated from actual results by 12%, the third highest among S&P 500 companies.

Part of the reason for this forecasting difficulty lies in supply chain uncertainties, as NVIDIA struggles to meet strong market demand. In addition, as NVIDIA's product portfolio continues to evolve, analysts find it difficult to track all growth drivers.

Elusive Growth

The speed of NVIDIA's revenue growth is even difficult to grasp within the company itself.

Since the end of the fiscal quarter in April 2023, NVIDIA's sales have significantly exceeded expectations, averaging 13% higher than the company's own forecasts, more than twice the average level of the past decade.

Morningstar analyst Brian Colello pointed out that the uncertainty of the supply chain makes modeling NVIDIA very difficult. "When demand is strong, supply is the most uncertain variable."

Colello raised NVIDIA's stock target price from $91 to $105 last month. Currently, NVIDIA's stock price is $126.56, with the closing price on Friday at $130.78.

Melius analyst Ben Reitzes raised NVIDIA's target price from $125 to $160 for the fifth time this year, implying a 26% increase from Friday's closing price.

According to current analyst estimates, NVIDIA is expected to have sales of $28.4 billion and a profit of $14.7 billion this quarter, representing growth of 137% and 111% respectively from the same period last year. In comparison, Microsoft's sales are expected to grow by 15%, while Apple's growth forecast is only 3%.

Despite analysts constantly adjusting their forecasts, NVIDIA's reality is very complex.

On the 19th, NVIDIA's stock price rose by 156%, surpassing Microsoft at one point to become the world's most valuable company. However, on last week's "Triple Witching Day," NVIDIA's stock price fell by 6.7%, evaporating over $220 billion in market value.

Valuation Dispute Raises Concerns

In fact, NVIDIA's current high valuation multiples have raised concerns among analysts and investors about the sustainability of future growth.

Bloomberg pointed out that NVIDIA is "the most expensive stock in the S&P 500 index" and believes that NVIDIA's valuation "is problematic" because "no one can figure out how much revenue this chipmaker really has - not even Wall Street analysts or NVIDIA executives themselves"Jonestrading's Chief Market Strategist Michael O'Rourke is concerned that NVIDIA's growth, which has exceeded expectations, will soon start to fade. "The risk is that you are paying a high price for a large market cap company, as the company's stock price is trending downwards, and this situation may continue."

However, some analysts remain optimistic about NVIDIA's long-term prospects. Colello believes that NVIDIA is at the core of high-growth markets such as artificial intelligence and data centers, and even if the growth rate slows down, it will still outperform the broader market