Buy the dip.
That was the mentality surrounding chip stocks this week, as investors picked up beaten shares and sent Nvidia to an all-time high. Strong prospects for Taiwan Semiconductor (TSM) were enough to reinvigorate Wall Street’s enthusiasm for AI, as growing confidence in the AI boom overshadowed chip supplier ASML’s sluggish forecasts and reports of export caps for advanced AI chips to eclipsed some countries in the Middle East.
Nvidia ended the week above $138 per share, bringing its market value to $3.39 trillion. It is now the second largest company in the world, after Apple. But that may not last for long. Experts I spoke with this past week say there is growing confidence that the chip giant will be the first Big Tech company to reach a $4 trillion valuation.
“There’s no doubt about it,” Ram Ahluwalia, CEO of Lumida Wealth Management, told me on Yahoo Finance’s Catalysts. “Demand for GPU chips is high and you are seeing early adopters starting to see some ROI.”
Nvidia CEO Jensen Huang sparked the stock’s rally earlier this month after describing demand for the new Blackwell chips as “insane.”
Even amid the stock’s dramatic outperformance, T. Rowe Price portfolio manager Tony Wang said investors are still “persistently underestimating” Nvidia’s growth potential. He sees “exceptional” demand for AI, making it “absolutely possible” for the chip giant to be the first to cross the $4 trillion threshold.
In the coming weeks, earnings from other Magnificent Seven companies will give investors a better understanding of Nvidia’s market dominance. Meta (META), Amazon (AMZN), Alphabet (GOOG, GOOGL) and Microsoft (MSFT), which account for more than 40% of the chipmaker’s revenue, have all pledged to continue investing in AI.
Last quarter, spending from Meta, Alphabet and Microsoft totaled more than $40 billion, while Amazon said spending in the second half of the year is likely to surpass the $30 billion spent in the first half.
BofA analyst Vivek Arya, who views Nvidia as a “generational opportunity,” cites capex commentary from top hyperscalers as one reason he sees Nvidia “strengthening its position.”
Arya raised his price target for the chipmaker to $190 this week, implying a nearly 40% rally from Friday’s close.
Arya and his team also cited Taiwan Semiconductor’s robust demand outlook as positive. TSMC — a top supplier to Nvidia and other giants including Apple — sparked an industry-wide rally after posting a more than 50% rise in third-quarter net profit and predicting full-year revenue growth of nearly 30%.
It’s safe to say that Big Tech’s third-quarter numbers will be a crucial test for Nvidia and key to the stock’s near-term momentum. Any disappointment in the AI spending plans could lead to volatility for Nvidia and the broader chip market.
But if that happens, the sell-off may not last long. Niles Investment Management founder Dan Niles recently told me on Yahoo Finance’s Opening Bid podcast that he remains optimistic about Nvidia’s long-term prospects.
“You still have several years of AI investment before you reach saturation or a more mature AI landscape,” Niles said. “You’ll see Nvidia’s revenues double in the next few years, and I think you’ll see its shares double in the next few years.”
Nvidia shares are up 21% so far this month, bringing year-to-date gains to 179%.
Seana Smith is an anchor at Yahoo Finance. Follow Smit on Twitter @SeanaNSsmith. Tips about deals, mergers, activist situations or something else? Email seanasmith@yahooinc.com.
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