Investor interest in artificial intelligence pushed tech stocks higher throughout the past year, notably the Magnificent Seven, that elite grouping of the largest tech corporations in the world.
While excitement over AI pushed a bunch of names — including Microsoft and Google — higher, Nvidia (NVDA) spent 2023 proving to investors that there is value in AI.
The semiconductor, which has been described by Bank of America as the "picks and shovels leader in the AI gold rush," reported massive earnings beats at every point last year, and its stock has surged in kind.
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About a year ago, shares of Nvidia were trading at a little more than $200, and its market cap was stuck at around $550 billion. Tuesday morning, down 6%, the stock is trading at around $685 per share, with a market cap of $1.7 trillion.
Nvidia will report fourth-quarter earnings after the bell Wednesday, with the Street expecting earnings of $4.60 on revenue of $20.5 billion.
Wedbush's Dan Ives, along with the bulk of Wall Street, is expecting another strong earnings beat from the semiconductor, though he said in a note that the focus for this report will be on the pace of growth out of Nvidia's data center.
"When Nvidia holds its conference call this week you will be able to hear a pin drop on trading floors across Wall Street. The AI Revolution starts with Nvidia and in our view, the AI party is just getting started," Ives said. "Nvidia's earnings are key for the tech world and broader markets."
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Analyst: Nvidia 'is not a boom and bust'
Deepwater's Gene Munster expects Nvidia to exceed 236% revenue growth for the quarter despite the restrictions that Nvidia has faced in China, all because the company has been working to improve supply.
"When you look at the big picture relative to the negative of China, relative to the positive of what's going on with AI, I think the China piece over the next several years is going to be noise," he said.
The big pressure point for the stock, according to Munster, comes down to growth rates looking out to 2025, when many investors are expecting that Nvidia's business will finally hit a wall "in part because of the law of large numbers. It's hard to imagine that this can continue."
The business, Munster said, is perceived as more of a boom-and-bust type business, rather than a stable one.
Comments from CEO Jensen Huang — which highlight three phases of AI adoption, beginning with hyper scalers and startups, followed by a wave of enterprise adoption before a final, valuable wave of heavy industry adoption — however, support Munster's belief that Nvidia is "not a boom and bust."
"Those drivers are part of the reason I believe Nvidia can go higher for longer," he said.
"Nvidia still has this developer toolkit that keeps their chips in high demand — developers know how to write for Nvidia GPUs; they want to continue to buy GPUs. That's the second reason why this can continue to grow higher for longer," he said, going on to cite a third pillar of ongoing strength for Nvidia: the industry's "great need for chips" at the moment.
"Nvidia is in a great spot relative to that. When you put all that together, I think there is justification that this company can grow faster for longer."
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Nvidia's 'iron grip'
Nvidia, according to RSE Ventures' Matt Higgins, has become an "ecosystem play."
Higgins called the company a leading indicator of "how real AI is," suggesting that if Nvidia does well, the country will in turn perform well economically.
"I think we're still in the early days of the AI boom," he told CNBC. "The bottom line is Nvidia has an iron-grip hold on this market and will for the foreseeable future."
Nvidia has an average price target of $746, with a high forecast of $1,200 and a low of $560, according to TipRanks.
Contact Ian with AI stories via email, ian.krietzberg@thearenagroup.net, or Signal 732-804-1223.
