After the stock price tripled last year, the popularity of artificial intelligence (AI) led to Nvidia's annual increase expanding to 60%. On last Friday, Nvidia's market value closed above $2 trillion for the first time, reaching $2.06 trillion, becoming the third largest market value company on Wall Street after Microsoft and Apple.
Amidst multiple positive factors, Wall Street continues to be optimistic about Nvidia's future performance. At the same time, Nvidia's excess returns have also sparked an AI "gold rush", with Wall Street seeking to explore and lay out more AI concept stocks from other chip manufacturers to other links in the AI industry chain.
Market continues to be bullish on NVIDIA
According to data, Nvidia controls approximately 80% of the high-end AI chip market, with customers including OpenAI, Microsoft, Alphabet, and Meta Platforms competing to purchase its chips in order to gain greater competitiveness in the rapidly rising field of Generative AI.
Nvidia has recently replaced Tesla as the most crowded (measured by market value) stock on Wall Street. Over the past 30 trading days, investors have traded an average of $36 billion worth of Nvidia stocks per day, while Tesla's daily trading value is $21 billion. Last Friday, Nvidia's stock trading volume reached $38 billion per day.
Richard Clode, portfolio manager at Janus Henderson Investors, told First Financial reporters that since mid-2023, the market's debate over Nvidia has mainly focused on its growth trends in 2025 and beyond, rather than its current strong performance. "Through the International Consumer Electronics Show (CES) at the beginning of this year and recent financial reports, Nvidia has largely proven to the market that its development will not come to a standstill soon."
Specifically, he stated that key driving factors include generational changes in the computing industry, a broad customer base, ongoing supply constraints, and a roadmap and potential for business revitalization in China. Firstly, in terms of rebuilding a $1 trillion data center infrastructure, Nvidia's management has realized that the currently installed $1 trillion data center infrastructure must be restructured for a world of accelerated computing and generative AI. They believe that the infrastructure scale of these data centers will grow to $2 trillion in the next five years. Secondly, in terms of expanding customer base, Nvidia's customer base is expanding from traditional focus on ultra large-scale cloud systems to enterprises spanning multiple industries, such as billions of dollars worth of business in the automotive, healthcare, and financial services sectors.
Furthermore, in terms of accelerating supply and advancing the path, Nvidia is accelerating supply and optimizing its path to meet demand. In addition, an exponentially larger language conversion model trained on larger datasets is exploring new features and revenue potential such as online advertising, recommendation engines, content creation, drug discovery, and co pilot, while also triggering a demand for computing power that cannot be met. Key supply bottlenecks such as CoWoS advanced packaging and high bandwidth memory (HBM) are also being resolved, and new suppliers are undergoing qualification certification. Nvidia has also accelerated their path by launching a new H200 product, with performance estimated to be twice that of the H100, and will launch the next generation B100 in the second half of 2024. This enables Nvidia to increase fees, drive improvements in content and average selling price (ASP), and also become a key factor for sustained growth.
Finally, in terms of the prospects of Nvidia's business in China, Nvidia is currently testing new chips that comply with regulations, which may revitalize its data center business in China in the future. "Based on these growth drivers, Nvidia's stock price will continue to be supported by actual profits and cash flow, making it more sustainable," he said.
Tejas Dessai, a research analyst at Global X ETFs, is also optimistic about Nvidia's long-term potential. He analyzed to First Financial reporters that in the coming years, Nvidia's data centers will replace chips worth trillions of dollars to complement the development of generative AI and provide Nvidia with a huge potential market; Nvidia has a leading position in the high-end AI chip field and is expected to still occupy the majority of the market share by 2030; In addition to AI processors, Nvidia's extensive products, such as networking solutions, greatly enhance its profitability in emerging computing fields; In addition to hardware, Nvidia's CUDA platform also helps to consolidate its position in software. This platform allows AI developers to effectively deploy workloads and use clusters of graphics processing units (GPUs). This software is uniquely positioned to help Nvidia defend market share while establishing user loyalty.
"Large scale cloud companies, countries, and large enterprises clearly have sufficient demand to purchase more AI chips. Therefore, until there are signs of slowing growth, the demand for Nvidia chips will remain high for at least 3-4 quarters in the future. Nvidia's AI chips will eventually enter the fields of smartphones, laptops and devices, IoT systems, robotics, medical devices, automobiles, etc." He added, "The market's consumption of AI infrastructure is a good omen for cloud infrastructure companies and AI software manufacturers. With the continuous improvement of GPU computing power, it is expected that more enterprises will accelerate the adoption of AI software and applications in the future."
Wall Street is still laying out these AI concept stocks
In addition to continuing to be optimistic about Nvidia's future profit prospects and stock price trends, analysts have also begun a new round of gold mining, attempting to seize more investment opportunities in AI concept stocks in order to achieve excess returns.
The contracts targeting AI concept stocks and chip manufacturer stocks show a general bullish sentiment in the market. In the past month, NVIDIA's server component supplier, Super Micro Computer Inc. (SMCI), has seen option trading volume reach about twice the market average. The call option on NVIDIA's competitor, Advanced Micro Devices (AMD), has become one of the most traded call contracts. From a long-term contract perspective, the premium of one-year call options over put options on SMCI has recently jumped to its highest value since May last year. The premium of a one month call option on VanEck Semiconductor compared to a put option is hovering near historical highs. The stock price of SMCI also rose 4.5% last Friday and has accumulated a rise of about 200% this year, approaching $1000. The stock price of ARM Holding, another chip manufacturer, has also risen by about 90% this year.
Francisco Bido, a senior portfolio manager at Large Cap Focused Fund, a large cap stock under investment firm F/m Investments, said, "Investing in AI is no longer just a fashion. There are many companies that can use this technology well to increase their upper and lower limits on profits." The fund has maintained a significant stake in Nvidia, but has begun to expand its AI investment landscape by investing in AMD and MongoDB. In Bido's view, with the changing demand for AI data infrastructure, the market may have a high demand for the database products of the two companies mentioned above. Although not as high as Nvidia, these two stocks have also seen increases of 30% and 9% respectively this year, and their stock prices have doubled compared to last year.
Ivana Delevska, founder and Chief Investment Officer of Spear Invest, stated that Nvidia remains the largest holding of its Spear Alpha ETF, but the ETF is also attempting to invest in the growing demand for AI related cybersecurity by holding a stake in cybersecurity company Zscaler. The fund also invested in Snowflake, betting on the market's demand for data infrastructure.
King Lip, Chief Strategist at Baker Avenue Wealth Management, revealed that as Nvidia's stock price continues to rise, he has reduced his holdings in Nvidia and instead increased his holdings in its key supplier, TSMC. "For investors who want to invest in AI but feel that Nvidia's stock price is a bit high, TSMC is a better and easier choice," he said.
Que Nguyen, Chief Investment Officer of Research Associates, is also looking for semiconductor companies with reasonable valuations that can benefit from the AI boom. He is optimistic about and has established positions in related stocks, including Lam Research Corp, which provides equipment for the semiconductor industry, and Micron Technology, which produces storage chips. The former's stock price has risen by about 20% so far this year, and Micron's stock price has also risen by 6%. Ruan said that "Large Language Models (LLMs) not only need to process data, but also storage space."