By Medha Singh
(Reuters) โ Nvidia is nipping at the heels of Apple to become the worldโs second-most-valuable company, as investors cannot get enough of the semiconductor maker whose chips power popular artificial intelligence tools such as ChatGPT.
An AI-induced jaw-dropping rally in Nvidia shares has taken the companyโs valuation from $1 trillion to more than $2 trillion in just nine months, overtaking Amazon.com, Google-parent Alphabet and Saudi Aramco on the way.
Nvidiaโs market capitalization currently hovers around $2.38 trillion, lagging Apple by just about $230 billion and Microsoft by about $645 billion.
The relentless rise in shares of Nvidia, which controls 80% of the high-end AI chip market, has been instrumental in pushing Wall Street to record levels this year, while giving the company a more than 5% weightage on the benchmark S&P 500 index.
Nvidia, which is up 95%, and Meta Platforms, which is up 46.6% so far this year, have also outperformed shares of other members of the so-called Magnificient 7, highlighting investorsโ insatiable appetite for everything AI.
โNvidiaโs rally reflects the incredibly strong fundamentals underlying its current business model,โ said Richard Meckler, partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey.
โIt is also finding strong speculative support as a favorite among long option buyers who have seen almost a straight upward climb throughout 2024.โ
Meanwhile, Apple, which is grappling with slowing iPhone sales, ceded its position as the most valuable U.S. company to Microsoft for the first time since 2021 in January.
In recent weeks, Nvidia also replaced Tesla as Wall Streetโs most traded stock by value.
The stockโs 12-month forward price-to-earnings ratio of 36.6 is lower than where it was a year ago despite the stockโs strong run as analysts raised its profit estimates.
By comparison, Intelโs PE multiple is 30.24 and that of Philadelphia SE Semiconductor Index is 39.6, LSEG data showed.
โNvidia is in fact the cheapest of the โAI narrativeโ stocks out there,โ said David Wagner, portfolio manager at Aptus Capital Advisors.
โWe continue to believe that in five years or 10 years we will all be talking about an industry that is far larger than the numbers being bandied about today.โ
However, there are signs Nvidia stock is nearing a peak.
Over the next 12 months, Wall Street analystsโ median target price implies Nvidia would trade at $850 per share, below the last closing price of $926, LSEG data showed.
โOf course, it is very difficult for any mega-cap stockโs price to continue to grow at this pace as the law of large numbers eventually comes into play. But the stock price could remain at these levels if the company can continue to meet or exceed the high expectations of analysts,โ Cherry Laneโs Meckler said.
(Reporting by Medha Singh in Bengaluru; Editing by Anil DโSilva)
Comments