Euphoric gains in Nvidia over the past month have taken the stock far ahead of analyst targets and in the process made it one of the most expensive names in the red-hot chip-making industry.
Some traders are drawing comparisons to Tesla’s quick-fire rally in October to a more than US$1-trillion market value. Nvidia has gained 45% over the past month ahead of its annual technology conference, which CEO Jensen Huang kicks off Tuesday. The stock is now 24% above the average analyst target price, the biggest premium ever.
At the heart of the rally is optimism that Nvidia is poised for years of growth amid strong demand for its graphics processors, which are used for computing tasks like artificial intelligence as well as gaming.
Nvidia now sells for 66 times estimated earnings for the next year, the second most expensive in the NYFANG+ Index after Tesla. It’s also one of the most expensive stocks in the Philadelphia semiconductor index.
“Our view is that most growth investors see the valuation as a key risk,” said Peter Garnry, head of equity strategy at Saxo Bank. “But the outlook is just incredibly strong, so many are looking past those worries.” He pointed to Nvidia’s strength in processors used for gaming, cryptocurrency mining, self-driving cars and data centres.
Since the start of the year alone Nvidia has added US$421-billion in market value, more than the market capitalisations of either Bank of America and Walt Disney. At $744-billion, it’s now the eighth most valuable company in the world.
The stock looks like “the new Tesla”, said Jim Dixon, an equity sales trader at Mirabaud Securities, citing the surge in cash and options volumes last week. The stock saw a record $34-billion traded on Thursday.
Because analysts haven’t kept pace with the recent rally, there are now at least 28 brokerages that recommend buying Nvidia stock yet have price targets below where the shares closed Friday. That implies either a series of target increases or wholesale downgrades of the stock could be imminent.
Nvidia’s ascent has coincided with a broad rally in technology stocks, which have been buoyed by strong earnings from the industry. The Nasdaq 100 Stock Index is on a 10-day winning streak, the longest since December 2020.
Technology stocks have seen a recent spike in buying from retail investors, according to data from Vanda Research, which said on Wednesday that individuals had snapped up more than $1.3-billion of shares in S&P 500 tech companies over the previous week. Nvidia was among the most actively purchased stocks by retail traders over that period, according to the report. — Reported by Jeran Wittenstein and Thyagaraju Adinarayan, (c) 2021 Bloomberg LP