On an impressive note last Friday, Nvidia claimed the title of the world’s most valuable company, outpacing even tech giant Apple, fueled by a record-setting rally in the stock. The surge was driven by a relentless demand for Nvidia’s advanced supercomputing AI chips. Nvidia’s stock market valuation briefly reached $3.53 trillion, just outstripping Apple’s $3.52 trillion, as per data from financial services firm LSEG.
This isn’t the first time Nvidia has touched the top spot this year; back in June, the company momentarily held the title before Microsoft and Apple overtook it. In recent months, the three companies’ market capitalizations have stayed neck-and-neck, with Microsoft holding a valuation of $3.20 trillion.
The story behind Nvidia’s rise speaks volumes about the current AI-driven wave sweeping across the tech industry. This month alone, Nvidia’s stock rose roughly 18%, with investors riding on the momentum created by OpenAI’s recent $6.6 billion funding round, Reuters.
OpenAI, the company behind generative AI tools like ChatGPT, relies on Nvidia chips to develop foundational models like GPT-4, which underscores the symbiotic relationship between AI innovators and Nvidia’s hardware.
According to Russ Mould, Investment Director at AJ Bell, Nvidia is indeed positioned in a “sweet spot.” Mould points out that the company’s success aligns with the growing trend of businesses embedding AI across routine operations. Barring any substantial economic downturn, he anticipates corporations will continue investing heavily in AI, adding further momentum to Nvidia’s growth trajectory.
Just recently, Nvidia’s shares soared to a record high, continuing a rally sparked by Taiwan Semiconductor Manufacturing Company’s (TSMC) stellar performance. TSMC, the world’s largest contract chipmaker, posted a remarkable 54% surge in quarterly profits driven largely by demand for AI-related chips.
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This wave of investor enthusiasm will be put to the test in November when Nvidia releases its third-quarter financial results. Analysts currently expect Nvidia’s revenue for the quarter to reach $32.9 billion, slightly above the company’s own forecast of $32.5 billion.
Morgan Stanley analyst Joseph Moore expressed confidence in Nvidia’s long-term potential, noting that although the recent stock rally has “raised the bar for earnings,” the company remains well-positioned.
After a meeting with Nvidia CEO Jensen Huang, Moore highlighted the company’s ramp-up in production for its forthcoming Blackwell chips, which he described as “quite strong.” Production of these next-gen chips is reportedly fully booked for the next 12 months, though Nvidia faced some pressure earlier this year following delays in the chips’ release.
Nvidia, Apple, and Microsoft hold substantial sway in the broader U.S. stock market, with the trio collectively accounting for about a fifth of the S&P 500’s weightage. This sector dominance illustrates how trends in AI, along with hopes that the Federal Reserve might cut interest rates, have contributed to the S&P 500 reaching an all-time high recently, Reuters.
Nvidia’s stock has also become a favorite among options traders, with data from Trade Alert indicating its options have consistently ranked among the most-traded assets over the past several months. The company’s share price has skyrocketed by nearly 190% so far this year, as the generative AI boom spurred Nvidia to announce forecast-beating projections on several occasions.
However, the question remains whether Nvidia’s revenue streams can maintain this momentum and whether the market’s excitement around AI might be tempered by more skeptical analyses. Rick Meckler, a partner at Cherry Lane Investments, weighed in on this, suggesting that while Nvidia’s near-term numbers are likely to impress, the long-term sustainability of its valuation will depend on more than just investor sentiment around AI.
Yet, if one thing is clear, it’s that Nvidia has cemented its position as a powerhouse in an AI-driven world. As the company prepares for its upcoming earnings report, all eyes remain on Nvidia’s continued innovation and how well it navigates the ever-evolving AI landscape.