Nvidia (NASDAQ: NVDA) stock has been a bit of a let down recently. Currently, it’s trading below the level it was at in mid-May.

I expect it to resume its long-term upward trend in the near future though. My prediction is that it will hit $250 before the end of the year.

The stock is cheap today

There are a number of reasons I’m targeting $250 before year end. One is that the stock looks dirt cheap today.

Looking at analysts’ earnings forecasts for next financial year, the forward-looking price-to-earnings (P/E) ratio is only about 17.

That’s a really low valuation. Especially when you consider that the company’s revenue is expected to jump 82% year on year this year.

Note that the majority of analysts’ see the stock as undervalued today. At present, the average 12-month price target is $297.

The SpaceX catalyst

The next reason I’m targeting $250 is that sentiment towards the stock – which has been a little lacklustre recently – looks like it’s starting to improve. We can see this in the share price, which recently hit its highest level since early June.

One driver here has been SpaceX’s Q2 earnings. On the earnings call, SpaceX CEO Elon Musk said that the space powerhouse will be exclusively using Nvidia’s chips going forward.

“Going forward, we’ve decided to build exclusively on Nvidia, because we think the Vera Rubin architecture is the best architecture. We think it’s the best AI computer, and we greatly value our close cooperation and partnership on many levels with Nvidia.”
SpaceX CEO Elon Musk

This statement shouldn’t be taken lightly because it reinforces the quality of Nvidia’s products.

Recently, competitors such as Broadcom and AMD have been having a lot of success with their AI chips. So, it’s very encouraging to hear a company of SpaceX’s size say that it has chosen Nvidia over its rivals.

Earnings should be strong

Finally, I expect Nvidia’s earnings later this month to be strong. The reason I reckon they’ll be good is that AMD just posted blowout earnings in which Data Centre sales were up 107% on an annual basis to $6.7bn – this signals that demand for AI chips is high.

Now, AMD’s share price fell after its earnings. But the set-up for Nvidia is very different.

As I mentioned earlier, Nvidia has a really low valuation right now. By contrast, AMD went into its earnings on a high valuation (a P/E ratio in the 60s) meaning that expectations were very high.

If we see a decent beat and raise from Nvidia, I see potential for share price gains. Note that the share price only needs to rise about 14% from here to hit $250.

Worth a closer look?

Of course, there are plenty of factors that could blow a hole in my investment thesis. If chip and/or AI stocks have another meltdown this year, $250 could be off the cards.

Meanwhile, if I’m wrong about the company’s earnings and they’re not fantastic, the share price could take a hit. I’m assuming that production ramp ups of its new Vera Rubin chip have gone smoothly.

Overall though, I like the risk/reward set-up at current levels. In my view, the stock is worth a closer look right now.

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Edward Sheldon owns shares in Nvidia and Broadcom.