Nvidia's rapid growth signals that the AI rally is far from over and suggests the company may lead the next wave of AI innovation with its highly anticipated Blackwell chips and next-generation AI processors.
The tech giant's 18 per cent price surge over the past 30 days is largely attributed to CEO Jensen Huang's announcement that demand for the new Blackwell chip is “insane”.
But Nvidia's latest rise highlights that the sharp pullback it experienced in June, when its market capitalisation dropped by US$430 billion in three days, was merely a correction. At that time, Nvidia lost the title of the world's largest company, which it had claimed from Microsoft just days earlier.
Market analysts now predict Nvidia will continue to climb and reclaim that top spot – this time from Apple.
A Morgan Stanley report revealed that orders for the Blackwell chips are fully booked for the next 12 months, adding further fuel to Nvidia's momentum and reinforcing expectations of sustained demand driving its continued growth.
Commenting on Nvidia's recent momentum, AMP's Shane Oliver told InvestorDaily: “The combination of strong earnings growth and prospects for lower interest rates along with ongoing enthusiasm for tech/AI appear to be the key drivers”.
He added: “It could be on the brink of another leg up.”
On Tuesday, MooMoo market strategist Jessica Amir, speaking on Ausbiz, also expressed optimism about Nvidia overtaking Apple as the world's most valuable company.
“They just need to grow by some US$200 billion in market cap, and they’ll officially become the biggest company once again. I think this time they’ll stay at the top longer, given the pace of their earnings growth,” Amir said.
Back in June, investors speculated that Nvidia might be in bubble territory. However, Oliver dismissed this notion, explaining that while tech valuations are stretched, they differ significantly from the early 2000s when Nasdaq stocks were trading at 100 times earnings.
He also argued that while it took over a decade for the benefits of the dotcom boom to materialise, AI's productivity gains are already evident.
“In this case, tech stocks are making real profits. Nvidia is making real profits, and they’re growing rapidly, so the market isn't as vulnerable as it was back then,” he said at the time.
Today, Oliver is slightly concerned about Nvidia's valuation, noting the company is currently trading at a price-to-earnings (PE) ratio of 65 times.
“Further volatility is likely, and it remains vulnerable to another correction at some point,” he cautioned.
Will the bubble continue?
Over the past year, the AI rally has propelled the so-called "Magnificent Seven" stocks - Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta - accounting for around one-third of the S&P 500’s market weight.
Several of these companies are set to report their financial results for the quarter ending in September later this month, and expectations are strong. Namely, tech is widely expected to lead all sectors with a projected 15 per cent earnings growth – with Nvidia expected to contribute almost half of that.
Speaking to InvestorDaily, Saira Malik, CFA, head of Nuveen Equities and Fixed Income, said that while technology and communication services have been riding the AI wave for some time, “we believe these sectors still have a long runway to outperform the broader market.”
As of 14 October, the S&P 500 is up 23.5 per cent year-to-date, with the Magnificent Seven contributing nearly half of that gain.
“Companies that supply the building blocks and infrastructure for AI should continue to attract strong demand. Semiconductors, in particular, will likely remain the primary beneficiary of AI’s ongoing growth,” Malik said.
US markets, according to Stephen Miller, are behaving as expected, given the “very positive, benign” macro backdrop.
However, speaking to InvestorDaily, he cautioned that this “positive, benign” environment is “mostly priced in,” indicating that it could be disrupted by an upcoming event.
“That could be an escalation in tensions in the Middle East that leads to a spike in oil prices. It might be China-Taiwan. I think the other slow-burning issue that’s bubbling away in the background is the US’ huge budget deficit that has to be funded,” Miller said.
“I know things look good at the moment, but if things look good then they are more vulnerable to unanticipated bouts of negative news.”
