Nvidia (NYSE: NVDA) is the best-performing S&P 500 stock this year with a rise of 167%. After its bumper earnings last week, analysts see further upside in the stock.
Nvidia reported its earnings for the fiscal first quarter of 2024 last week. Its revenues came in at $7.19 billion – well ahead of the $6.52 billion that analysts were expecting. The adjusted EPS of $1.09 was also higher than the 99 cents that analysts were expecting.
Importantly, it guided for revenues of $11 billion in the current quarter which smashed the consensus estimate of $7.15 billion.
Nvidia stock soared almost 25% after the earnings release last week and Wall Street analysts scrambled to raise their target prices.
Nvidia is bullish on its AI business
The AI segment helped Nvidia post better-than-expected earnings. The company’s CEO Jensen Huang said “The computer industry is going through two simultaneous transitions — accelerated computing and generative AI.”
He is bullish on the company’s AI business and said, “A trillion dollars of installed global data center infrastructure will transition from general purpose to accelerated computing as companies race to apply generative AI into every product, service and business process.”
The company’s CFO Colette Kress also echoed similar views and said, “Generative AI is driving exponential growth in compute requirements and a fast transition to NVIDIA accelerated computing, which is the most versatile, most energy-efficient, and the lowest TCO approach to train and deploy AI.”
She added, “Generative AI drove significant upside in demand for our products, creating opportunities and broad-based global growth across our markets.”
Analysts raise Nvidia stock’s target price after the earnings
Meanwhile, after the bumper earnings multiple Wall Street analysts raised their target price on Nvidia.
Bank of America reiterated the stock as a buy while raising its target price from $340 to $450 with analyst Vivek Arya expressing optimism that the company’s market cap is on track to surpass $1 trillion.
Currently, only Apple, Amazon, Microsoft, and Alphabet have a market cap in excess of $1 trillion. Among other US companies, Tesla and Meta Platforms previously surpassed the $1 trillion market cap but have since fallen out of the coveted club.
JPMorgan doubled its target price
JPMorgan analyst Harlan Sur doubled Nvidia’s target price to $500. “Generative AI and large language/transformer models are driving accelerating demand for Nvidia’s accelerated compute/networking platforms and software solutions. The team has positioned itself as the one-stop solution provider with its portfolio of compute/networking silicon, software/managed cloud services, hardware systems, and full-stack ecosystem for training/deploying complex models,” said Sur in the note.
Evercore ISI was also pleased with Nvidia’s earnings
Evercore ISI also raised its target price on Nvidia to $500 with analyst C.J. Muse saying “what can we say other than just WOW! … We’ve simply never seen a beat like this … ever.”
Barclays too raised its target price to $500 as brokerages see more upside in Nvidia stock despite the humongous rally this year.
AI is fueling demand for chips
The AI euphoria has lifted the demand for chips leading to a shortage. Sharon Zhou the co-founder and CEO of Lamini, a startup that helps companies build AI models like chatbots said, “Because there is a shortage, it’s about who you know.”
Zhou drew parallels with the shortage of toiler papers during the COVID-19 pandemic. Back then, there was a serious shortage of several goods including toiler papers as people stocked up on daily essentials. There was hoarding behavior which compounded the problem. The supply chain issues did not help matters either.
The Wall Street Journal reported that previously UBS analysts estimated that an earlier ChatGPT version of ChatGPT needed about 10,000 graphic chips. However, Tesla CEO Elon Musk who has been lobbying for AI regulations believes that updated versions need upto five times more.
The report added that there is a shortage of chips with AI companies scrambling to secure supplies.
At the Wall Street Journal CEO conference, Musk said that “GPUs at this point are considerably harder to get than drugs.”
At the same conference, Musk warned of AI risks and said, “It’s a small likelihood of annihilating humanity, but it’s not zero,” while adding there is a “non-zero chance of [AI] going full ‘Terminator’.”
UBS says Nvidia is not overvalued
A section of the market has been concerned about Nvidia’s valuation as it is on the cusp of breaking into the $1 trillion dollar market cap club.
UBS analyst Timothy Arcuri said, “From a valuation perspective, our EPS went up far more than the stock so we believe it is actually now less expensive than it was into earnings which opens up some more room to run.”
Notably, Nvidia’s revenue guidance for the fiscal second quarter was 50% higher than what Wall Street was expecting.
Baird said that it expects Nvidia’s annualized per-share earnings to reach $10 over the next few quarters which would mean a PE multiple of around 40 at current prices.
AI boom: Is it hype or for real?
Meanwhile, a section of the market believes that there is widespread hype in AI and draws parallels with the tech boom of the 90s.
However, many others believe AI euphoria is real. Wharton professor Jeremy Siegel is among those who believe that the AI pivot is for real and said that Nvidia “ratified” the AI excitement with its “blowout earnings.”
For now, the momentum lies with Nvidia as its chips are crucial for building AI models. The stock is trading flat in US premarket price action today after the rally last week.
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