Nvidia's stock tripled last year on AI excitement. What to expect as the next stage unfolds

Even after an astounding run last year, many investors expect momentum for Nvidia to continue in 2024 as long as the company can follow through on its promises to investors. "People will be surprised at how long this growth cycle is for Nvidia," said tech investor Paul Meeks. Demand for artificial intelligence catapulted Nvidia into the spotlight in 2023 as investors poured money into the chipmaker, boosting shares 239% on bets that its graphics processing units would power the latest and greatest large language models.

Even with all the attention, Nvidia didn't let investors down. At present, the company has blown past estimates on AI tailwinds for several straight quarters, and showcased sustainable demand for its products that show few signs of waning. The company's stunning progress garnered the love of Wall Street, with analysts upping their price targets on the stock to account for future growth and naming it among their top AI picks.

Wall Street and the investing community seem to agree that Nvidia's run is a rare occurrence in an industry defined by innovation, likening it to the iPhone moment for the chipmaking company. Nvidia's 'iPhone moment' Few could have predicted the frenzy ChatGPT would create when it debuted in late 2022, but no company could have been better prepared for the excitement than Nvidia.

Karl Freund, an analyst in the industry for years who briefly worked at Advanced Micro Devices, says the company has been positioning itself to capitalize on AI long before the phrase dominated Wall Street lingo. "The iPhone turned the smartphone market on its head and said 'this is the product you have to have,'" said Freund, the founder and principal analyst at Cambrian AI Research.

"That's the only time I've seen anything close to this, but even that pales in comparison to what Nvidia has been able to realize. This is not a surprise for them. They've been planning for this for years." NVDA 1Y mountain Nvidia's stock performance over the last year While the innovation may differ from the 2007 launch of the iPhone that triggered the smartphone mania, or the rise of the Internet, Kim Forrest, chief investment officer at Bokeh Capital Partners, notes that the hype for AI is nothing new for an industry defined by the next savvy new tools innovators bring to the table.

If history is any guide, that could also foreshadow a bubble ahead, akin to the one that burst in the early 2000s, pummeling unprofitable technology during the dotcom bubble. Meeks, the tech investor, expects a similar phenomenon to play out at some point down the road, bracing for a hit sometime in 2025, with much of 2024 devoted to the ongoing training of large language models and the introduction of new applications.

"That will happen just like it always does," he said. "New theme, a couple of powerhouses come out of it, and a lot of ghosts. I don't think it happens in '24, because there'll still be continued excitement about training." What to expect in 2024 Many on Wall Street don't foresee Nvidia hype dying down in the new year.

In fact, many investors expect shares to keep rising as long as the company can smash expectations and guide higher. That's a feat many on Wall Street expect the company to accomplish, with the consensus price target implying another 35% upside for shares, according to FactSet. "Their growth rate will slow down, and that'll be a cue to start taking some chips off the table, but it seems like there's still a lot of opportunity, and a lot of competition validates the space," said Mahoney Asset Management's Ken Mahoney.

With 2024 likely in the bag, a key question for investors is what happens in 2025, according to Freund. And that trajectory could depend entirely on updates coming out of the company's annual GTC conference in March, and progress competitors can make at trimming the steep costs associated with inferencing.

"That's what the game is," Forrest said. "How can you continue making products better, faster and stronger, yet cheaper." Many notable companies have thrown their hat into the ring in recent months in the hopes of offering alternatives and gaining customers. Both Advanced Micro Devices and Intel launched their own AI chip competitors in December , while Amazon's AWS cloud unit announced its own iteration to allow customers to build and run applications.

Emerging alternatives may crowd the industry and chip away at some of Nvidia's market share, but don't expect these companies to overtake its longstanding dominance. Freund says the market is big enough and growing, enabling others to carve out a niche. But no company is capable of toppling Nvidia's throne.

"I can't think of anything other than the iPhone comes close to comparing to what they've been able to do," Freund said. "Now the question is, well, how long can they sustain it?".