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 in 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 that might not be for long. Experts I spoke with this past week say there’s growing confidence the chip giant will be the first Big Tech firm to reach a $4 trillion valuation.
“There’s no question about it,” Ram Ahluwalia, Lumida Wealth Management CEO, told me on Yahoo Finance’s Catalysts. “The demand for GPU chips is strong, and you’re seeing early adopters starting to get some ROI.”
Nvidia CEO Jensen Huang fueled the stock’s rally earlier this month after describing demand for the new Blackwell chips as “insane.”
Even amid the stock’s dramatic outperformance, T. Rowe Price portfolio manager Tony Wang told me investors still “continuously 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 coming weeks, earnings from fellow Magnificent Seven companies will give investors better insight into Nvidia’s market dominance. Meta (META), Amazon (AMZN), Alphabet (GOOG, GOOGL), and Microsoft (MSFT), which account for more than 40% of the chipmaker’s revenue, have all pledged to continue investing in AI.
Last quarter, spending by Meta, Alphabet, and Microsoft totaled more than $40 billion, while Amazon said spending in the second half of the year will likely surpass the $30 billion spent during the first half.
BofA analyst Vivek Arya, who views Nvidia as a “generational opportunity,” cites capital expenditure commentary from top hyperscalers among the reasons that he sees Nvidia “strengthening its position.”
Arya lifted his price target 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 more than 50% jump in net income for the third quarter and forecasting full-year revenue growth of nearly 30%.
Safe to say, Big Tech’s third quarter numbers will be a crucial test for Nvidia and key to the stock’s momentum in the short term. Any disappointment in AI spending plans could lead to volatility for Nvidia and the broader chips market.
But if 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 remains bullish on Nvidia’s long-term prospects.
“You’ve got several more years of AI investment before you hit saturation or a more maturing AI landscape,” Niles said. “You’ll see Nvidia’s revenues double over the next several years, and I think you’ll see the stock double over the next several years.”
Nvidia shares have rallied 21% so far this month, bringing its gains to 179% year to date.
Seana Smith is an anchor at Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Tips on deals, mergers, activist situations, or anything else? Email seanasmith@yahooinc.com.
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