Nvidia briefly joined an exclusive group of U.S. companies with a market value of $1 trillion on Tuesday, as investors flocked to the chipmaker, which has emerged as one of the major beneficiaries of the AI boom.
In less than eight months, the stock value of Nvidia has tripled, reflecting the growing interest in artificial intelligence following significant advancements in generative AI. This technology enables human-like conversations and the creation of everything from jokes to poetry.
Since October, Nvidia’s value has increased by approximately 200 percent, far outpacing any other member of the S&P 500 index. The company’s remarkable performance has propelled its valuation ahead of its peers, yet some analysts argue that the AI boom suggests the stock should be valued even higher.
On Tuesday, the stock price of Nvidia closed 3 percent higher at $401.11, coming very close to the $1 trillion valuation mark it had reached during intraday trading. Currently, only four other U.S. companies—Apple, Alphabet, Microsoft, and Amazon.com—boast a valuation exceeding $1 trillion.
“We consider Nvidia to be the most significant company in the world as we move into an era that will increasingly rely on enhanced AI capabilities,” stated Angelo Zino, an analyst at CFRA Research.
The highest price target for Nvidia places the company’s value at around $1.6 trillion, on par with Google’s parent company, Alphabet, Reuters news report said.
Nvidia’s forward price-to-earnings multiple (P/E), a common metric for assessing stock value, stands at 47.23, significantly higher than peers Qualcomm and Intel, according to Refinitiv data.
“While the current valuation may appear high, we believe Nvidia possesses the earnings potential as the adoption of its AI GPU is still in its early stages,” commented Kinngai Chan, a senior research analyst at Summit Insights Group.
Major technology companies have shifted their focus to AI, anticipating a surge in demand for this technology. Analysts indicate that Nvidia supplies around 80 percent of the powerful chips called graphics processing units (GPUs) used to power generative AI. The success of OpenAI’s ChatGPT has prompted tech giants like Alphabet and Microsoft to capitalize on generative AI.
Under the leadership of CEO Jensen Huang, Nvidia has transitioned to the data center market in recent years after establishing itself as a dominant force in video game chips. The company experienced rapid expansion during the pandemic, as gaming soared, cloud adoption surged, and crypto enthusiasts turned to its chips for mining.
Jensen Huang’s emphasis on AI is expected to drive growth in the coming months. In just the past week, Nvidia’s shares rose by approximately 25 percent, triggering a rally in AI-related stocks and boosting other chipmakers.
Consequently, the Philadelphia SE Semiconductor index closed at its highest level in over a year on Friday. “Nvidia’s ascent to the $1 trillion cap is fueled by technical traders and the AI frenzy, although it comes with a high price tag,” noted Jim Kelleher, an analyst at Argus Research.