The aftertaste of Nvidia's results continues to provide news that gives a sense of the monumental size the company is achieving. If the artificial intelligence (AI) chip giant achieved the largest increase in the stock market value of a company in a single day this Thursday, surpassing the record of $ 204.5 billion set by Meta a few weeks ago, this Friday has another limit exceeded the reach of very few. The company's market capitalization exceeded $2 trillion during the day, which only Microsoft (3.08 trillion), Apple (2.85) and oil major Saudi Aramco (2.06) have achieved. Three companies that separate it from the global throne after overtaking Amazon and Alphabet this month.
The presentation of the 2023 financial statements came as a shock to the price, with a rise of 16.40% on Thursday and an additional rise of more than 4% at the market open on Friday to $823, although the rally continued somewhat throughout the day Loss of strength progressed. The development has temporarily silenced voices warning that the artificial intelligence boom may be driving valuations too high, to bubble-like levels. The most important analysis houses are now ruling out this scenario: the consensus target for Nvidia is $852.96, which still offers some upside potential. There are even those who venture even further and predict that the range for the stock's rise is still wide, up to double the current price, since it is a technology in its infancy and still needs to be implemented has a long way to go.
This discussion, pitting those who believe the market is going too far with AI against those who think otherwise, will shape the debate. David Rainville, fund manager at Sycomore AM, part of the Generali Investments ecosystem, is one of the optimists. “When we think about the excitement around AI, it is possible that a bubble will form over time, but we believe we are only at the beginning.” For example, Nvidia, the company most closely associated with AI investments is trading at less than 30 times consensus 2025 earnings per share (EPS). To put this in perspective, at the height of the Covid bubble, Nvidia shares were trading closer to 60 times expected earnings per share.†.
That is, we must avoid associating the concept of an expensive stock with the fact that it has appreciated a lot, since these do not always go hand in hand, especially in cases like that of Nvidia, where the forecasts for future earnings and profits have multiplied thanks to the flourishing generative AI business and have become a completely different company than just a few years ago.
That doesn't mean there aren't risks. Citi analysts name several. Increased competition in the video game sector could lead to a loss of market share. Slower-than-expected adoption of generative AI could lead to lower data center revenue. And a deterioration in crypto mining or the automotive market it supplies with chips could also have an impact.
Another obstacle the tech company is trying to overcome is U.S.-imposed restrictions on chip exports to China, which are already hurting the growth of its business with the Asian giant. On the day the results were presented, CEO Jensen Huan explained that they are testing with their customers two new AI chips that are specifically designed to be sold in the Chinese market without violating White House guidelines.
Meanwhile, the spectacular annual increases in sales (126% to $60,922 million) and profits (581% to $29,760 million) have led to a flurry of target price improvements from analysts They cover the value. 60 of them recommend purchasing their titles. And they keep six. There are cases like Baird's ($1,050) and Bernstein's ($1,000) that exceed the consensus price. And others that are more conservative, such as Jefferies ($780) and Deutsche Bank ($720), although the latter raised its price target from $560 previously. In the middle are HSBC ($880), Goldman Sachs (875), JP Morgan (850) and Citi (820).
Nightmare for bassists
However, what is music to the ears of Nvidia shareholders is a nightmare for other investors. Hedge funds making pessimistic bets on value lost around 3 billion euros this Thursday, according to an analysis by S3 Partners LLC, which called the situation an “AI-generated nightmare”. Those who share the thesis that AI has sparked an irrational speculative fever have made Nvidia their target to profit from its potential declines: The chipmaker is the third-largest shorted stock in the world at $18.3 billion, according to S3 UNITED STATES . It is true that some optimistic investors cover some of the risk of an eventual correction in their investment by short betting.
The move is going badly for them at the moment. “Short sellers will likely wait a while to look for cheaper exit points,” Ihor Dusaniwsky, managing director of predictive analytics at S3, said in a note. The semiconductor sector is precisely the worst-performing sector this year, with losses of $7.2 billion in February alone.
Nvidia's surprising results and the subsequent stock market boom reminded many of Catherine Wood. The founder of Ark Invest was a pioneer in recognizing the potential of artificial intelligence and at one point chose to invest in Nvidia. However, by early 2023, she had already sold most of her shares in the company, losing one of the most astonishing rallies in the history of the American stock market. With its capitalization of two trillion dollars, Nvidia alone is now worth more than the entire German Dax index with the 40 largest companies in the country.
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