Prediction: Nvidia's Revenue Growth Will Drive Shares to $400 Next Year

Nvidia (NASDAQ: NVDA) stock closed trading Friday at around $222 per share. So, predicting it will be a $400 stock next year is a bold call, especially since it's already the largest company in the world by market cap. However, there's math to back that premise up. Furthermore, recent comments from CEO Jensen Huang also make this believable.

If Nvidia can truly rise by 80% between now and the end of next year, it's an obvious buy at today's level, as there are few stocks that can be expected to deliver that type of upside.

Image source: The Motley Fool.

Nvidia believes it will double its chip sales next year

Recently, Huang told the news media that he expects Nvidia to sell twice as many chips next year as in 2026. With all things being equal, suggest the business will be twice as big; therefore, its valuation should double. While there's a lot more to it than that, we're clearly still in the early innings of the artificial intelligence (AI) build-out.

This sentiment was echoed by Chief Financial Officer Colette Kress, who gave guidance for 70% revenue growth during the company's next fiscal year. Nvidia's guidance has always been tempered, and it has consistently exceeded predictions quarter after quarter during the AI race. Huang, on the other hand, has always made bold projections about where AI spending will go, and his forecast that the company will double the number of chips it sells year over year in 2027 is likely at the top end of the projection.

We can expect reality to land somewhere in between those points, but if Nvidia is likely to grow by anywhere from 70% to 100% next year, it's a no-brainer buy. The AI race isn't slowing down anytime soon, and as every company involved in the space continues to go full steam ahead on constructing AI data centers, Nvidia will remain one of the primary beneficiaries. And yet with all that going for it, its stock is not expensive.

Nvidia is a bargain right now

Price-to-earnings ratio (P/E) is one of the best valuation metrics for weighing fully mature and profitable companies. Trading at less than 28 times earnings, Nvidia actually looks like a bargain.

NVDA PE Ratio data by YCharts.

The S&P 500 trades for about 25.1 times earnings, but the average S&P 500 component isn't expected to double its business in the next year. That's the primary flaw with the trailing P/E ratio -- it doesn't account for expected future growth.

However, investors can use earnings projections to get an idea of where a stock could be heading. Right now, Nvidia trades at 14 times next year's estimated earnings.

NVDA PE Ratio (Forward 1y) data by YCharts.

If the business delivers results in line with analysts' consensus expectations, and if it still trades for 28 times trailing earnings a year from now, the stock will have doubled. That would easily lift it past the $400 per share threshold. Furthermore, the company has a strong track record of outperforming analysts' estimates, so I wouldn't be surprised if the stock rises even more than that.

With the AI boom in full swing, I think this is as good a time as any to buy Nvidia shares. Shunning the stock now just because it has been so successful over the past few years would be a major mistake, as it looks well positions to keep providing investors with low-risk, market-beating returns.

Keithen Drury has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.