Buy the dip.
That was the mindset around chip stocks this week as investors scooped up beaten-down shares, sending Nvidia to a record high. A strong outlook for Taiwan Semiconductor (TSM) was enough to revive Wall Street’s enthusiasm for AI as growing confidence within the AI boom overshadowed chip supplier ASML’s sluggish forecast and reports of export caps of advanced AI chips to some Middle Eastern countries.
Nvidia closed the week above $138 per share, bringing its market value to $3.39 trillion. It’s now the world’s second-largest company behind Apple. But which may not be for long. Experts I spoke with this past week say there’s growing confidence the chip giant will probably be the primary Big Tech firm to achieve a $4 trillion valuation.
“There is no query about it,” Ram Ahluwalia, Lumida Wealth Management CEO, told me on Yahoo Finance’s Catalysts. “The demand for GPU chips is powerful, and also you’re seeing early adopters beginning to get some ROI.”
Nvidia CEO Jensen Huang fueled the stock’s rally earlier this month after describing demand for the brand new Blackwell chips as “insane.”
Even amid the stock’s dramatic outperformance, T. Rowe Price portfolio manager Tony Wang told me investors still “constantly underestimate” Nvidia’s growth potential. He sees “exceptional” demand for AI making it “definitely possible” that the chip giant crosses that $4 trillion threshold first.
In the approaching weeks, earnings from fellow Magnificent Seven corporations will give investors higher insight into Nvidia’s market dominance. Meta (META), Amazon (AMZN), Alphabet (GOOG, GOOGL), and Microsoft (MSFT), which account for greater than 40% of the chipmaker’s revenue, have all pledged to proceed investing in AI.
Last quarter, spending by Meta, Alphabet, and Microsoft totaled greater than $40 billion, while Amazon said spending within the second half of the 12 months will likely surpass the $30 billion spent in the course of the first half.
BofA analyst Vivek Arya, who views Nvidia as a “generational opportunity,” cites capital expenditure commentary from top hyperscalers amongst the explanations that he sees Nvidia “strengthening its position.”
Arya lifted his price goal on the chipmaker to $190 this week, implying a rally of nearly 40% from Friday’s closing price.
Arya and his team also cited Taiwan Semiconductor’s robust demand outlook as a positive. TSMC — a top supplier for Nvidia and other giants, including Apple — triggered a sector-wide rally after posting a greater than 50% jump in net income for the third quarter and forecasting full-year revenue growth of nearly 30%.
Secure to say, Big Tech’s third quarter numbers will probably be an important test for Nvidia and key to the stock’s momentum within the short term. Any disappointment in AI spending plans could lead on to volatility for Nvidia and the broader chips market.
But when 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 he stays bullish on Nvidia’s long-term prospects.
“You’ve several more years of AI investment before you hit saturation or a more maturing AI landscape,” Niles said. “You will see Nvidia’s revenues double over the following several years, and I feel you will see the stock double over the following several years.”
Nvidia shares have rallied 21% thus far this month, bringing its gains to 179% 12 months so far.
Seana Smith is an anchor at Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Recommendations on deals, mergers, activist situations, or the rest? Email seanasmith@yahooinc.com.
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