Nvidia Stock Has More Than 60% Upside According to Analysts' Average Price Target. Should You Buy While the AI Trade Wobbles?
Investors are skeptical of many AI stocks right now, questioning the long-term return on investment for tech companies spending so much on data center infrastructure. And as a leading semiconductor company for AI infrastructure, Nvidia(NASDAQ: NVDA) has felt the pain from the sell-off, with its share price falling 13% over the past month.
That's put Nvidia's share price at around $202, far below analysts' average price target for Nvidia stock of $327. If it reaches that target, investors stand to gain around 62%. So, is now the right time to buy Nvidia stock, despite the concerns about AI spending?
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I think so, especially given that recent tech earnings reports indicate tech companies are likely to continue investing in infrastructure over the next few years.
AI spending continues to ramp up
Let's start with SK Hynix's (NASDAQ: SKHY) recently reported third-quarter results. The company is the leading high-bandwidth (HBM) memory company with 50% market share and the second-largest DRAM and NAND flash memory company with 24% and 19% market share, respectively.
The company has benefited immensely from a ramp-up in AI spending , sending its sales 328% higher in the quarter and its operating profit up 632%. Even more impressive is that the company's management said in a press release that 50% of its available memory supply for 2027-2028 is already sold out -- and that it expects its supply to remain constrained through 2030 .
What does this have to do with Nvidia? Well, SK Hynix is the leading supplier of HBM memory for many of Nvidia's data center components. If SK Hynix is experiencing exponential demand for its memory processors, part of that is due to Nvidia placing substantial orders. And if Nvidia is placing large orders for memory, it's because AI spending continues to rise.
This leads me to Alphabet's and Microsoft's recent cloud sales. These two companies hold a combined 35% of the cloud market, and they're both experiencing impressive sales gains from their AI spending. Google Cloud revenue more than doubled in the third quarter to $30.7 billion and Microsoft's Azure sales rose 48% to $33.2 billion.
Alphabet says it will spend up to $205 billion this year in capital expenditures (capex), mostly for AI. Microsoft says it will spend $170 billion in fiscal 2027. That's an acceleration of spending for both companies and it's a result of Microsoft and Alphabet realizing that their cloud investments are paying off.
And they're not the only ones. Bank of Americasaid recently that AI data center spending is estimated to more than double to $2.1 trillion by 2028. While investors are rightly concerned that some AI spending is too high and won't be worth the investment, Alphabet and Microsoft are already benefiting from their spending and are doubling down.
Again, that's great news for Nvidia because these two companies are critical customers for Nvidia, and it's a good indicator that AI infrastructure investments aren't slowing down yet.
Why now is a good time to buy Nvidia stock
Nvidia's shares have a trailing price-to-earnings ratio of around 26 right now, which makes them slightly cheaper than the tech sector P/E average of 28.5. Investors don't have to back the truck up and go all-in on Nvidia stock right now. But the recent pullback does present a buying opportunity for some investors to start a small position or add to an existing one.
The chipmaker will report its fiscal 2027's third quarter results on Nov. 17 and Wall Street's consensus estimates are for earnings per share of $2.47 and nearly $109 billion in sales. Considering Nvidia has beaten analysts' earnings estimates in seven of the past eight quarters, shareholders could be pleasantly surprised again soon.
More importantly, with Nvidia's customers already experiencing significant growth and continuing to invest in AI, Nvidia's long-term growth prospects remain intact.
Should you buy stock in Nvidia right now?
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Bank of America is an advertising partner of Motley Fool Money. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Microsoft, and Nvidia. The Motley Fool has a disclosure policy .
Nvidia Stock Has More Than 60% Upside According to Analysts' Average Price Target. Should You Buy While the AI Trade Wobbles? was originally published by The Motley Fool
