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Nvidia (NVDA) soared to a record high last Thursday after reporting blowout earnings for its fiscal second quarter and forecasting Q3 sales of $16 billion, well ahead of estimates of $12.5 billion. The outlook underscores Nvidia’s role as the key beneficiary of the artificial intelligence (AI) craze. Data center operators are stocking up on Nvidia’s processors, which are adept at handling the heavy workloads required by AI applications. The expected surge in demand for Nvidia’s chips has many analysts ramping up their price targets for the stock, fueling concerns some may be overly bullish.
The rally in Nvidia to a new record high has prompted analysts to raise their price targets for the stock to 32% above its current price. Rosenblatt Securities said, “Nvidia’s epic print and guidance higher two quarters in a row is simply unprecedented and just getting started,” as it raised its price target on the stock to $1,100 from $800. The average analyst price target on Nvidia has risen to $644 in the wake of last week’s stellar earnings report. That implies a 32% gain on top of the 234% the stock has already advanced this year.
Nvidia has a commanding lead in the market for AI processors, which handle the heavy workloads needed to power tools like OpenAI’s ChatGPT. Last week, Nvidia CEO Huang said he expects most of the $1 trillion data center market to shift to accelerated computing for generative AI models, boosting demand even more for Nvidia’s processors. According to Rosenblatt Securities, the rest of Nvidia’s businesses, including chips for automobiles, networking, and personal computers, “are just gravy.”
Nvidia’s valuation has risen to extreme levels and trades at a 50% premium to the Nasdaq 100 Stock Index ($IUXX) (QQQ). Despite its record-high price and scorching valuation, some analysts believe Nvidia can still go even higher. Evercore Wealth Management said, “There have been questions about whether Nvidia would grow into its valuation, and now it seems like there’s a decent chance it will. This is not crazy expensive, given the kind of extraordinary growth we’re seeing.”
As the excessive bullishness for Nvidia continues, some analysts are concerned the exuberance for the stock has gone too far. Research firm New Constructs said even though it has high regard for Nvidia’s business and management, “It makes absolutely no sense to be buying shares of Nvidia at its current valuation.” Also, NZS Capital sees parallels to the boom and subsequent bust experienced by Cisco Systems and other makers of communications equipment that boosted the internet craze of the late 1990s. NZS Capital said, “Right now, there is a wild, global hoarding bubble for graphics processing units (GPUs). This bubble will predictably burst in the most spectacular fashion in the next few years as many of those GPUs lay dormant thanks to the overbuild.”
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
