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Nvidia Closes In On $1 Trillion Valuation As AI Demand Soars

Updated: Jan 4

[Edited] Nvidia, the renowned chipmaker, briefly joined the exclusive $1 trillion valuation club on Tuesday, as investors flocked to the company that has emerged as one of the biggest beneficiaries of the AI boom.

Credit: Reuters

The stock's value has tripled in less than eight months, reflecting the surge in interest in artificial intelligence, particularly in generative AI, which can engage in human-like conversation and create everything from jokes to poetry.

Since October, Nvidia's shares have gained about 200%, outperforming all other members of the broad-market S&P 500 index. This rally has propelled its valuation ahead of its peers, and analysts believe that the AI boom indicates that the stock should be worth even more.

On Tuesday, Nvidia's shares closed 3% higher at $401.11, coming close to the $1 trillion valuation mark after reaching that level in intraday trading. Currently, only four other U.S. companies have a valuation exceeding $1 trillion: Apple Inc, Alphabet Inc, Microsoft Corp, and Inc.

Analyst Angelo Zino from CFRA Research expressed his view on Nvidia's significance, stating, "We view Nvidia as the most important company on the planet in an era that is rapidly changing towards one that will be emphasized by greater AI capabilities."

The recent surge in Nvidia's stock price follows a revenue forecast that surpassed Wall Street estimates by more than 50%, which some analysts described as "unfathomable" and "cosmological." The highest price target for the company values it at approximately $1.6 trillion, on par with Google-parent Alphabet.

Nvidia's forward price-to-earnings multiple (P/E), a common benchmark for valuing stocks, stands at 47.23. This figure is significantly higher than that of peers Qualcomm and Intel, as well as the sector median of 18.09, according to Refinitiv data. Senior research analyst Kinngai Chan from Summit Insights Group believes that despite the lofty valuation, Nvidia has the earnings potential due to the early stages of AI GPU adoption.

CEO Jensen Huang
Credit: Getty Images

As AI technology gains traction, major tech companies are focusing on it, with the hope of attracting demand. Nvidia plays a crucial role in this space, as 80% of the powerful chips called graphics processing units (GPUs) that power generative AI are produced by the company. The success of OpenAI-owned ChatGPT has prompted tech giants like Alphabet and Microsoft to capitalize on generative AI.

Under the leadership of CEO Jensen Huang, Nvidia has shifted its focus to the data center market in recent years, expanding its business beyond gaming chips. The company experienced rapid growth during the pandemic, driven by increased gaming, surging cloud adoption, and the use of its chips for cryptocurrency mining. Huang's bet on AI is expected to fuel further growth in the coming months.

Despite its sky-high valuation, analysts believe that Nvidia's AI chips business still has room for growth, as generative AI technology is still in its early stages, with widespread adoption expected in the years to come. Last week alone, Nvidia's shares rose approximately 25%, triggering a rally in AI-related stocks and boosting other chipmakers. This surge helped the Philadelphia SE Semiconductor index close at its highest level in over a year on Friday.

Jim Kelleher, an analyst from Argus Research, commented on Nvidia's valuation, stating, "Technical traders and AI mania have pushed Nvidia toward the $1 trillion cap, and it is not inexpensive."


- Nvidia briefly joined the $1 trillion valuation club, driven by the AI boom.

- The stock's value has tripled in less than eight months.

- Nvidia's shares have gained about 200% since October, outperforming its peers.


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