Nvidia
shares were surging Thursday as analysts welcomed results showing the artificial-intelligence boom is still powering its growth. It also relieved concerns about supply constraints and how far demand is being driven by Chinese customers.
Nvidia
(ticker: NVDA) stock was up 7.7% to $507.55 in premarket trading on Thursday after its quarterly earnings and outlook came in well above analysts’ projections.
Nvidia not only beat expectations, it also addressed several concerns about whether its progress is sustainable. The company said it expects product supply to increase in the next fiscal year, alleviating worries that it won’t be able to meet rising demand for AI chips.
“With visibility extending into ’24, [Nvidia] management has qualified additional suppliers…and expects to increase supply each quarter through next year to meet demand,” KeyBanc analyst John Vinh wrote in a research note.
Vinh raised his target price on Nvidia to $670 from $620 and kept an Overweight rating on the stock. The new target is based on a forecast price-to-earnings multiple of 35 times for 2025.
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Revenue from China was within the company’s historical range of between 20% and 25%, indicating the beat wasn’t driven by Chinese orders being pulled forward over fears of future U.S. restrictions.
UBS analysts noted that Nvidia indicated it could reallocate Chinese shipments of its A800 and H800 chips—which have intentionally limited capacity to meet U.S. export restrictions—if required. They kept a Buy rating on the stock and raised their target price to $560 from $540.
Nvidia executives told analysts on an earnings call that additional export restrictions of data center graphics-processing units (GPUs) to China wouldn’t have an immediate material impact on its financial results but would result in a long-term loss of an opportunity for the U.S.
Nvidia wasn’t the only stock gaining in the wake of its report, as investors bet AI will power growth for other hardware and software companies. Chip maker
Advanced Micro Devices
(AMD) rose 2.3% in the premarket, while
Microsoft
(MSFT) gained 1.8% and Google-parent
Alphabet
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(GOOGL) rose 1.4%.
However, Nvidia’s outsize gains suggest it looks set to remain the market’s favorite bet on AI technology for now.
“Nvidia remains the purest scale play on AI adoption,”
Oppenheimer
’s
Rick Schafer wrote in a research note, as he raised his target price on Nvidia to $650 from $500 and kept an Outperform rating on the stock.
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Competition doesn’t look like an immediate concern. Nvidia executives emphasized the move toward GPUs to power AI tools and away from general-purpose processors. Nvidia is estimated to have around a 90% market share for AI-related GPUs currently.
“Strong competition is important for a healthy innovation ecosystem. The market should want to see another player and should want to see this next digital transformation boom be more pervasive and persistent versus a bubble of irrational exuberance,” said Daniel Newman, CEO of technology research firm Futurum Group.
Newman said Nvidia’s report showed there should be opportunities for companies such as AMD and
Intel
(INTC) to provide rival AI chip offerings. However, he noted the window for alternatives to grow could be narrowing as Nvidia increases the attractiveness of its own platform via software development and industry partnerships.
Intel was up 0.1% in premarket trading.
Write to Adam Clark at [email protected]
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