The AI revolution has not only sparked a sea change in several industries this year, but it has also more than tripled the Nvidia Corp. (NASDAQ:NVDA) stock in 2023. Yet, it remains the “cheapest AI play” right now, according to a Bernstein analyst.
What Happened: Bernstein Research’s senior semiconductor analyst Stacy Rasgon thinks that Jensen Huang-led Nvidia is still a value purchase despite the massive rally this year.
Powered by the AI revolution, Nvidia’s shares have surged over 241% in 2023 so far. Despite this, the company’s valuations are the cheapest they have been since the cryptocurrency bubble burst in 2018.
Rasgon has a target of $700 for the Nvidia stock, which is currently trading at $488.90. Despite the spectacular returns this year, though, Rasgon says the rally has been “disappointing.” Over the last month, the stock has actually declined by 1.2% even though its earnings beat expectations.
“In fact, while forward estimates have quadrupled this year as generative AI has boomed, multiples have compressed by almost two-thirds during the same period,” Rasgon told CNBC in an interview.
See Also: Nvidia’s AI Chips Eat Intel’s Lunch: Here’s How Much More You’d Have Made If You Invested $1,000 In Jensen Huang’s Company Instead Of Intel In 2023
So why are investors not as excited about Nvidia despite its earnings beat and a market share of 85% in the generative AI space?
Rasgon argues that one of the reasons is worries about Nvidia and the AI space entering an air pocket. This could spell a death knell for this category as a whole, he says.
“There is a worry that there is an air pocket out there. Advanced Micro Devices (NASDAQ:AMD) did something smart – they latched onto this AI story… they have given guidance where there’s room to go up,” he said.
“They’ve said they will do more than $2 billion AI revenue next year, that number could be $3 billion or $4 billion. If Nvidia goes $70 billion next to that, it will be disappointing,” Rasgon explained.
Essentially, what Rasgon is saying is that even if Nvidia performs well enough, the perceived risk has pushed investors towards alternatives like AMD.
“Whether that’s justified is a whole other question,” Rasgon added.
Nvidia’s Far Outperformed Rivals Like Intel
One of the reasons for Nvidia’s stock taking off this year is the massive spike in its data center revenue.
Nvidia made $3.8 billion in data center revenue in the September 2022 quarter, while Intel made $4.4 billion.
Fast forward to the same quarter in 2023, Nvidia’s numbers surged nearly four times to $14.5 billion, while Intel’s fell to $3.8 billion.
Nvidia Vs. Intel’s Data Center Business’ Revenue
| Period | Nvidia | Intel |
| Q1 2022 | $3.8B | $6.1B |
| Q2 2022 | $3.8B | $4.7B |
| Q3 2022 | $3.8B | $4.4B |
| Q4 2022 | $3.6B | $4.6B |
| Q1 2023 | $4.3B | $3.7B |
| Q2 2023 | $10.3B | $4.0B |
| Q3 2023 | $14.5B | $3.8B |
The broad consensus amongst analysts regarding Nvidia’s prospects is bullish – analysts give the stock a ‘Buy’ rating with a potential upside of 27.6%.
Bernstein’s $700 target price for Nvidia is notably higher at 43.2%.