Chip-making giant Nvidia (NVDA) could gain another 15% or more this year as investors continue to back the Artificial Intelligence (AI) revolution, analysts and investors said. Up nearly 200% this year, Nvidia soared last month after providing a ‘jaw-dropping’ second-quarter revenue guidance that was 50% higher than Wall Street expected. This came amid break-neck demand for its AI accelerator chips that power generative AI apps like ChatGPT or the Internet of things (IOT).
Matt Tuttle, CEO of Tuttle Capital Management, sees the party continuing, with Nvidia surpassing $450 and likely moving much higher than that as the software firm continues to lead the AI race. “Nvidia has the corner in the market for semiconductor chips behind the AI boom,” he said. “If you are going to be in AI, you need to own Nvidia so I think the stock will continue to defy gravity and keep moving higher.”
Tuttle said Nvidia is also the top AI play in a group of elite tech stocks called the ‘Magnificent Seven’ that include Apple (AAPL), Alphabet (GOOGL), Microsoft (MSFT), Amazon (AMZN), Meta (META) and Tesla (TSLA) and are investing heavily in the machine-learning space.
Tech gathers momentum
“If you don’t own Nvidia, you are trying to figure out how to,” Tuttle continued. “You have so much FOMO (fear-of-missing out) right now with this stock that if you are a portfolio manager and you don’t own it, clients are going to ask you why?”
Investors should take advantage of Nvidia pull backs, such as the one experienced Wednesday when the stock closed 1.8% lower after reports the U.S. is considering further curbs on AI chip exports to China, to profit from the stock’s uptrend, Tuttle added.
Nvidia executives said earlier Wednesday that Washington’s fresh curbs would not have an “immediate financial impact” on the company. So how much higher can Nvidia’s stock go? That’s anyone’s guess, of course, but Wedbush analyst Dan Ives sees shares rising sharply in the second half, in line with a 12%-15% jump for overall tech in that time frame, led by the AI investment frenzy.
Tech stocks are due for “a much broader rally as investors further digest the ramifications of an $800 billion AI spending wave on the horizon and what this means for the software, chip, hardware, and tech ecosystem over the next year,” Ives said in a note Monday. He has a $490 price target for Nvidia while the highest is $710 and the lowest $212.
Ives also called AI the “fourth industrial revolution,” equating it to a “1995 Internet moment, not a 1999 dot.com bubble moment,” that will play out across the technological landscape over the coming years. He expects big tech will continue to spend to boost its software-AI capabilities with 8%-10% of overall IT budgets going to AI next year versus roughly 1% in 2023.
Caution urged
Kim Forrest, founder and chief investment officer at Bokeh Capital, urged some caution around Nvidia. The stock looks overbought from a price-earnings (PE) ratio perspective, she claimed, adding that AI may not bring the life-changing transformation many investors envisage. “I am bullish about AI in general but I think that like many tech trends, this is not going to happen on Wall Street’s timing,” Forrest said, adding that AI demand may eventually turn weaker than expected.
Forrest continued: “I know what AI can do. People think it can recreate the human mind but it can do so in a very limited way. This is not going to be magic. AI is not going to come up with entirely novel solutions or new thoughts.”
Is there a bubble?
While machine learning will help lift business and manufacturing productivity, its full effects won’t be felt for another five years, Forrest said. This means investors could fall victim to FOMO and lose their shirt as the AI bull market rages on. Tuttle, meanwhile, conceded some AI stocks could be in bubble territory though he doesn’t expect the overarching sector, especially the big tech stalwarts, to face such risks.
“Many stocks have moved in sympathy with AI, a lot more than they should have,” he said. “So there may be a bubble in some companies, depending on what your definition is.” He highlighted energy firm Eaton (ETN) as a case in point. “This is an industrial company that’s implementing AI for its business but it’s not developing technology for AI,” said Tuttle, adding that the shares have moved excessively higher in the past two months.
He echoed views that the AI frenzy is not comparable to the dot-com bubble.
“Back then, you had many firms that had zero revenues but just put a dot.com on their name and went up 3,000%,” Tuttle recalled. “But Nvidia, Apple and Google are real companies so if the rug is pulled under them, they have other businesses to focus on.”
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
