Nvidia, Inc. (NVDA) shares rallied strongly Thursday, helping the graphics chipmaker add close to $100 billion in market capitalization in a single session.
The strong gains raise the specter of an imminent correction, but the company stands to gain from a series of catalysts lined up for the coming months.
Nivida a Star Performer Year-to-Date: Nvidia is part of the elite group of stocks that have more than doubled in value in the year-to-date period. So far this year, the stock has added about 129 percent. The forward P/E ratio is 54.95, notably higher than the P/E of peers such as Advanced Micro Devices, Inc. (AMD).
The sell-side is largely unworried about the heady valuation. The premium valuation Nvidia commands is justifiable, given a depending/expanding platform story, Wells Fargo analyst Aaron Rakers said in a note.
The analyst is particularly excited about the prospect of increasingly visible recurring subscription software revenue contributions.
Nvidia’s Recent Upside Fueled by Metaverse Opportunity: Thursday’s rally came about as investors bid up the stock on Omniverse growth opportunities, as it provides the platform for developing the metaverse and a wide range of vertical applications.
Some of the upside also came from retail activity, Wedbush said. About 40 percent of the daily flows were from retail, according to the firm.
Wells Fargo’s Rakers expects Metaverse to present Nvidia with a $10-billion incremental market opportunity over the next five years.
Long term, Wells Fargo thinks the market opportunity could be even greater as digital assets and digital twins become significant economic drivers. Nvidia could also benefit materially from the significant compute needed to power the Metaverse, with AI-assisted design and parallel computing at the forefront.
Catalyst-Rich Period Ahead for Nvidia: Nvidia’s all-important GTC conference kicks off next week. The annual event is scheduled between Nov. 8 and 11, and it will be held virtually and attended by AI innovators, technologists, and creators. CEO Jensen Huang will deliver the keynote address Tuesday.
Next up will be the company’s quarterly results due Nov. 17. Analysts, on average, estimate earnings of 76 cents per share on revenues of $4.51 billion, up from the 52 cents per share in earnings and $3.24 billion in revenues reported for the year-ago period.
Nvidia shares could also benefit from the customary year-end rally in stocks, as funds scramble to dress up their portfolios.
Is $1 Trillion Market Cap in Sight: Nvidia’s shares hit a $100-billion market cap for the first time in July 2017, about 18 years after the initial public offering. Although the market cap fell below the level in late 2018, it reclaimed it a year later. The stock launched into a steep upward climb thereafter and is going from strength to strength.
Although continued upside depends on a lot of variables, both intrinsic and extraneous to the company, the $1-trillion market cap milestone appears more likely to be a near-term reality than a distant dream.
Given Nvidia has about 2.49 billion in outstanding shares, to attain a market cap of $1 trillion, the stock price would need to cross the $402 mark.
By Shanthi Rexaline
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