James Gard: If you haven’t heard of generative AI this year, you haven’t really been paying attention. And the company at the centre of this is Nvidia, our latest stock of the week. Investors are familiar with hyped stocks but the current excitement seems off the scale. Now Wall Street earnings forecasts need to be treated with some caution, but AI darling Nvidia has just beaten them by some margin in its latest earnings report. Year on year comparisons are impressive indeed: earnings per share rose from 26 cents to 2 dollars 48 cents and revenue doubled to 13 billion dollars. Forecasts for the current quarter are strong enough to keep tech analysts. So just after the results, Morningstar has raised its fair value estimate from $300 to $480, which is now close to its current price.
Our analyst Brian Colelo says Nvidia is in an exceptionally strong position, with scope to increase its dominance in the coming years. We are forecasting that Its data center, or DC, business, could generate $100 billion in revenue by the fiscal 2028 financial year – that’s 10 times what it made in 2019. Expectations have gone from sky high to stratospheric. The boom in artificial intelligence means that everyone wants Nvidia chips from ChatGPT to Amazon and Meta. One entity that will not be getting its hands on any is China, and in fact the Biden administration is planning to restrict the export of chips.
So far this hasn’t hurt the company. Nvidia’s success has reinvigorated the tech sector, which went into reverse last year, and when its shares do well, this has a ripple effect across the rest of US stock market. Can one company drive a market recovery? So far that seems to be the case. Given the noise suurounding Nvidia, its no surprise that the shares are up more than 200% so far this year. Tesla was in the same position in 2020 and 2021 and its shares have yet to scale those dizzy heights again. There’s a cautionary tale here but investors don’t want to hear that right now. For Morningstar, James Gard.
