Nvidia sent shockwaves through the market last Thursday, with its shares surging an impressive 16% following the release of a robust financial report and bullish forecasts for the future. Since the beginning of the year, Nvidia's stock has seen a meteoric rise of 59%, attracting considerable attention from investors. Amidst the growing interest in AI-related stocks, Nvidia briefly saw its market capitalization soar past the $2 trillion mark. This remarkable performance has undoubtedly bolstered the company's valuation, prompting both admiration and scrutiny from market watchers.
Questions surrounding Nvidia's valuation have been swirling, with concerns particularly focused on whether the current stock prices adequately reflect the company's earnings potential. Analysts remain divided on the matter, with some expressing skepticism about the sustainability of Nvidia's extraordinary growth trajectory.
While worries persist about potential limitations in Nvidia's data center segment and the looming threat of a downturn, analysts like Hua Cheng from Mirova offer a more optimistic outlook, suggesting that the company could offset such risks through expansion in its automotive division or by diversifying the applications of its chips across various industries. Nvidia's CEO has been quick to address concerns, highlighting the potential benefits of the company's emphasis on graphics processing units over central processing units.
Despite a decrease in Nvidia's price-to-earnings ratio over the past year, the company still commands a premium valuation compared to its peers in the S&P500's information technology sector. Paul Meeks from Harvest Portfolio Management argues that Nvidia's current valuation could be justified given the expected doubling of its earnings per share this year and its promising long-term prospects in the AI industry. However, some investors, including Ken Mahoney from Mahoney Asset Management and Greg Bassuk from AXS Investments, prefer to capitalize on the recent price surge by taking profits.
As Nvidia continues to lead the charge in the AI space, the company underscores the sustained demand for its products and its ability to maintain momentum through continued innovation in AI infrastructure. Nvidia's CEO highlighted the significant contribution of the company's data center business to inference operations, underscoring an essential aspect affirming the company's resilience to demand fluctuations.
Nvidia's robust chip production for AI model training and its impressive sales growth in the last quarter offer opportunities for its suppliers to benefit directly or indirectly from this upward trajectory. Among the companies expected to ride the wave of Nvidia's AI growth story are semiconductor manufacturers TSMC and Samsung Electronics, memory manufacturer Micron Technology, and semiconductor equipment company BESI.
