Why Nvidia’s ‘gravy train’ could come to a halt after a volatile trading week

Nvidia (NVDA) stock went on a wild ride this week as shares reversed trend from all-time highs and Wall Street continued to debate how much the chip giant can add to its record high.

“The stock’s sharp rise makes it vulnerable to profit taking, but we dispute any volatility [is] “It is likely to be short-lived,” Bank of America wrote on Thursday. The bank reiterated a buy rating and $150 price target, calling Nvidia a “top pick.”

The chipmaker, which briefly overtook Microsoft (MSFT) as the world’s most valuable company on Tuesday, saw its market capitalization fall on Friday to about $3.12 trillion, less than Microsoft’s $3.33 trillion.

Patrick Moorhead, founder and CEO of Moor Insights & Strategy, told Yahoo Finance on Friday that investors should be wary of signs of a decline.

While he said he doesn’t see the status quo of Nvidia’s dominance changing over the next six to nine months, investors should focus on “the bottom line profitability that people in the ecosystem are achieving or not achieving.”

“These are software companies like Adobe, Salesforce, SAP, and ServiceNow. Because if those companies and those consumers don’t pay more for these new AI features, this big train will come to a grinding halt, as we saw in the dot-com bust.”

Moorhead warned that increased competition could also act as a headwind to pricing power, as Nvidia competes not only with “commercial silicon providers” like AMD (AMD) and Intel (INTC) but also with “on-premise providers” AWS (AMZN) from Amazon and Microsoft. Azure (MSFT) and Google (GOOG, GOOGL).

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Nvidia President and CEO Jensen Huang delivers a speech during Computex 2024 in Taipei, Taiwan, Sunday, June 2, 2024. (AP Photo/Chiang Ying-ying)

Nvidia President and CEO Jensen Huang delivers a speech during Computex 2024 in Taipei, Taiwan, Sunday, June 2, 2024. (AP Photo/Chiang Ying-ying) (News agency)

The wave of investment in artificial intelligence has continued to fuel optimism about Nvidia’s growth rate. In its most recent earnings, the company reported adjusted earnings that rose 461% year over year while revenue grew 262%.

In addition to the stellar dividend, Nvidia also completed a 10-for-1 split on June 10 and doubled its quarterly cash dividend — a move echoed by other tech giants in recent quarters.

Nvidia shares are up nearly 200% over the past 12 months and more than 3,200% over the past five years. Year-to-date, Nvidia has gained nearly 160%.

But despite its high rating, The issue is worth $4 trillion construction complete.

“I don’t see any reason why we can’t get up to $4 trillion,” Moorhead said. “A lot of this is based on expectations because you look at the price-to-earnings ratio, it’s absolutely astronomical. And if we can see some positive signals from the players downstream…[I] “I don’t see any reason why we can’t reach $4 trillion.”

Wedbush analyst Dan Ives agreed, writing in a note to clients on Thursday: “We believe that over the next year, the race for a $4 trillion market cap in technology will be front and center between Nvidia, Apple and Microsoft.”

Ives said the AI ​​revolution is a party “just getting started,” driven by the pace of data center spending by tech giants. Increased spending on AI is expected to reach $1 trillion over the next decade with more than 70% of companies eventually heading down the AI ​​use case path.

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“It’s 9pm at a party that lasts until 4am with the rest of the tech world now joining in,” he said.

Alexandra Canal He is a senior reporter at Yahoo Finance. Follow her on Twitter @allie_canal, linkedin, And email it to [email protected].

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