Not enough people are talking about artificial intelligence.
At least, that's the thinking behind Evercore's massive price target increase for Nvidia on Friday. The firm upgraded their price target for Nvidia from $180 to $250, implying that Nvidia should be worth about $45 billion more than its current market cap.
"[Nvidia] management believes that investors still severely underestimate the impact of AI and the size of the potential market ('Every PC/Server will have AI in the future')," C.J. Muse, an analyst at Evercore, wrote in a note to clients on Friday. "We are only at the cusp of AI’s growth potential and Nvidia is creating THE AI computing industry standard."
Artificial intelligence is one of the most promising areas in the tech industry, but few people are talking about it. While augmented reality might give you directions to your favorite coffee shop overlaid on the sidewalk in front of you, artificial intelligence could realize that you are on your way, brew up your favorite order, and automatically charge your account as soon as you pick up your latte.
Nvidia's graphics processing chips are ideal for powering the processing intensive AI systems, and Nvidia is entirely responsible for finding that huge new market for their chips. The company's culture of innovation led to a search for new uses for their graphics cards back in the 90s and the development of their CUDA parallel processing platform in 2006.
Since then, people have been using CUDA to speed up specialized computing tasks like video game rendering. As artificial intelligence systems began becoming more prevalent, Nvidia's chips and CUDA programming platform became the perfect pair for developing the next generation of computer intelligence.
"Nvidia has created an industry standard for AI systems that will be nearly impossible to replicate. NVDA dominates Training today, and looks to be the leader in Inference tomorrow," Muse said.
Nvidia's traditional market dominance has come from PC gamers hoping to fight zombies at faster frame rates. The company is doubling down on its data center business recently, and Muse thinks it could be even bigger than the gaming business very soon.
Nvidia recently released its Volta architecture for chips and has already seen increased adoption in major data centers like Amazon's huge Amazon Web Services platform, Muse said. The business is set to be one of Nvidia's largest in the "near term" according to the company's leadership.
Another hot area of tech, autonomous driving, will be a big factor in Nvidia's long term growth. Companies making headlines for their self-driving cars, like Tesla, are using Nvidia's "Drive" platform to process visual data from the road and translate that into decisions on how to drive the car.
AI is everywhere and will grow to be a part of nearly every computer of the future, according to Nvidia's management. As the AI industry explodes, Nvidia is set to grow its earnings by a similar measure. Muse thinks the company will be announcing earnings of $10 a share within the next 3-5 years. Nvidia posted earnings of $2.65 in its most recent fiscal year, so $10 would be an improvement of 277.36%.
Muse summed up his sky-high valuation:
"Considering the strong first mover advantage NVDA has in AI coupled with the CUDA ecosystem that is becoming the de facto standard for AI globally, we suspect the company’s multiple will remain elevated for some time as growth investors will be willing to project beyond 2020-2022, where earnings power should continue to grow in double digits as AI proliferates globally."
Nvidia's stock is up 4.95% shortly after Muse released his updated price target. Nvidia has grown 74.49% so far this year, including Friday's jump.