Nvidia Corp shares up 250% in 7 months; can it add another 'N' to 'FAANG' stocks?

Nvidia Corp has been buzzing at Dalal Street after the chipmaker inched close to the $1 trillion market capitalisation. The scrip had surged more than 24 per cent last Thursday, followed by a 3 per cent rise on Friday. The company commanded a mcap of close to $970 billion.

Nvidia projected strong revenue growth and said it was boosting production of its AI chips to meet surging demand and analysts believe that it's a no-brainer that Nvidia is bound to become a megacap to join the likes of Facebook, Apple, Amazon, Netflix, and Alphabet which are often abbreviated as FAANG stocks.

Before settling at $389.46 per share on Friday, Nvidia's share hit the $394.80 level during the session. Nvidia reported April quarter earnings and hosted a conference call on Wednesday, May 24 where it guided for particularly strong quarter-on-quarter revenue growth in the July quarter, driven by surging AI demand.

Currently, Nvidia is the world's sixth biggest company in the world following Apple, Microsoft, Saudi Aramco, Alphabet and Amazon. It is also the fifth biggest company on Wall Street, much ahead of Warren Buffet's Berkshire Hathaway, which has a total mcap of little more than $700 billion.

The world is heading toward AI, and companies like Open AI, Google, and Microsoft are aggressively working toward it. But all of them are heavily dependent on Nvidia's GPU (graphics processing unit). We are seeing massive outperformance in Nvidia's share. AMD is the second-biggest producer of GPUs, but it is not anywhere near Nvidia, said Parth Nyati, Founder, Tradingo.

"Nvidia has a kind of monopoly because the GPU is a deep technology that is difficult to break down. Its CEO Jensen Huang highlighted that a trillion dollars of installed global data centre infrastructure will transition from general-purpose to accelerated computing as companies race to apply generative AI into every product, service, and business process. We believe it has the potential to be added to FAANG stocks," he said.

Other analysts said that the excitement around AI tools and ChatGPT as well as their potential usage and impact has significantly influenced the stock prices of AI product manufacturers like Nvidia, AMD, and even their related capital equipment manufacturers such as Axcelis.

As a leader in graphics processing units (GPUs) and AI technologies, Nvidia has benefited from the increased demand for AI-driven solutions. The development and success of ChatGPT, powered in part by one of Nvidia's high performance computing accelerators, have further heightened investor enthusiasm, said Marc Despallieres, Chief Strategy & trading officer at Vantage.

"The increasing adoption of AI applications across various industries, such as healthcare, autonomous vehicles, and cloud computing, has boosted Nvidia's revenue prospects, leading to an upward trajectory in its stock price in the short term. While widespread AI technology adoption remains in its nascent stage, it is safe to say that investors have started recognizing the pivotal role of companies like Nvidia in the AI revolution, thus positively impacting their stock performance," he said.

Global brokerage firm Nomura said Nvidia’s July quarter outlook suggests that the recovery in chip demand from US cloud server providers began earlier than expected. Nvidia’s gaming-related sales rose quarter-on-quarter in the April quarter and it feels Nvidia’s very strong overall sales guidance implies continuing quarter-on-quarter growth in the July quarter.

Nvidia’s AI boom is making it climb up the big tech ladder and is positioning itself to become a must-own stock for everyone. However, the stock continues to remain a premium counter consistently on the back of high growth potential and superior stock price performance.

Shares of Nvidia have rallied 35 per cent in the last one month, while the stock is up 175 per cent in the year 2023 so far. It has gained over 100 per cent in the last one year, while it has surged over 500 per cent in the last 5 years period. It has more than tripled from its October 2022 levels at $112.

Nvidia is poised to become a trillion-dollar company and there will be no surprise if it stubs-out any other peers from the FAANG or FAGMAN (Facebook, Apple, Google, Microsoft, Amazon and Netflix) companies or may pave the way for another acronym for mega-caps.

Edward Moya, Senior Market Analyst at The Americas OANDA said NVIDIA’s AI boom is making it climb up the big tech ladder and is positioning itself to become a must-own stock for everyone. "The days of talking about FAANG have morphed into MATANA (Microsoft, Apple, Tesla, Alphabet, Nvidia, and Amazon). AI investment will likely be entering a boom stage," he said.

Nvidia remains to be a consensus buy from the analysts tracking the stock. The 42 analysts offering 12-month price forecasts for NVIDIA Corp have a median target of $450.00, with a high estimate of $600. It has no 'sell' rating on the stock. UBS, Jefferies and Goldman Sachs have maintained their 'buy' ratings on the stock, while Morgan Stanley upgraded it to an 'overweight' rating.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Business Today)

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