Nvidia (NASDAQ:NVDA) experienced a remarkable surge to an all-time high last Thursday following its announcement of exceptional earnings for the second fiscal quarter, coupled with a Q3 sales projection of $16 billion – a figure significantly surpassing the estimated $12.5 billion. This projection underscores Nvidia’s prominent position as a major beneficiary of the ongoing artificial intelligence (AI) trend. Notably, data center operators are actively acquiring Nvidia’s processors due to their proficiency in managing the substantial workloads integral to AI applications. However, the substantial anticipated rise in demand for Nvidia’s chips has triggered heightened enthusiasm among analysts, leading to concerns that some might be excessively optimistic.
This surge in Nvidia’s value to a new historic peak has incited analysts to elevate their price targets for the stock by as much as 32% above its current value. Rosenblatt Securities commented, “Nvidia’s remarkable performance and consecutive optimistic forecasts are unparalleled and only the beginning,” as the firm adjusted its price target for the stock from $800 to $1,100. In the aftermath of last week’s exceptional earnings report, the average price target set by analysts for Nvidia has risen to $644. This implies an additional 32% increase on top of the impressive 234% surge the stock has already witnessed this year.
Nvidia has firmly established its dominance in the AI processor market, known for its adeptness in handling the intensive workloads crucial for powering tools like OpenAI’s ChatGPT. Huang, Nvidia’s CEO, stated recently that he anticipates a significant portion of the $1 trillion data center market to transition towards accelerated computing to support generative AI models. This transition is expected to further amplify the demand for Nvidia’s processors. According to Rosenblatt Securities, the other sectors of Nvidia’s business, encompassing chip production for automobiles, networking, and personal computers, are merely supplementary.
With Nvidia’s valuation reaching remarkable heights, the stock now trades at a premium of 50% compared to the Nasdaq 100 Stock Index ($IUXX) (QQQ). Despite its record-breaking valuation and notable price, some analysts believe that Nvidia’s potential to rise even higher remains. Evercore Wealth Management articulated, “While doubts about Nvidia’s ability to justify its valuation existed, current circumstances indicate a reasonable likelihood of achieving that. Given the exceptional growth being witnessed, this valuation isn’t excessively steep.”
As the prevailing optimism surrounding Nvidia persists, a group of analysts is expressing concern that this enthusiasm might be overly exuberant. Research entity New Constructs acknowledged its respect for Nvidia’s business and management; however, it asserted that purchasing Nvidia’s shares at the current valuation is illogical. Moreover, NZS Capital drew parallels to the boom and subsequent decline experienced by entities like Cisco Systems during the late 1990s internet frenzy. NZS Capital stated, “At present, a global frenzy for graphics processing units (GPUs) is underway. This frenzy is likely to burst dramatically in the upcoming years, given the excess supply that will render numerous GPUs dormant.”
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