Widespread investment in artificial intelligence has been a boon for Nvidia shareholders. The company's share price has soared over the past year as optimism has grown over increased spending on ai infrastructure, leading to outsized profits that have left many wondering what might happen next. continuation.
While the rapid rise of Nvidia stock (a meteoric 400% since 2022) has left jaws dropping, it hasn't taken everyone by surprise. Real Money Pro's Bruce Kamich accurately predicted last March that “investors should look for additional gains” and more recently outlined the possibility that the stock could one day reach $726.
Nvidia hasn't met Kamich's upside target, but since the stock has eclipsed $700, he recently revised his analysis, resulting in a new price target.
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Nvidia soars on growing demand for ai
The potential of artificial intelligence has been debated for decades. In the 1950s, mathematician and computer scientist Alan Turing investigated the design of artificially intelligent computers, and the Rand Corporation created the first artificial intelligence program in 1956. Over the years, many science fiction books and films have considered the possibility that one day machines will be able to think for themselves.
Although the concept of ai is not new, it was not until recently that ai really became mainstream. ChatGPT, a big language ai model, became the fastest app to reach 1 million users after its launch in December 2022.
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The success of ChatGPT sparked a flurry of investment in similar generative ai applications designed to search, analyze and create content from large data sets. Microsoft quickly signed a deal to include ChatGPT in its Bing search engine, prompting Alphabet's Google to respond with its own artificial intelligence app, Bard.
However, the influx of ai investments has not been limited to search. The military is investigating the use of ai on the battlefield, financial companies like JP Morgan Chase are using it to hedge portfolio risks, healthcare companies are examining its potential in drug development, and retailers are considering whether ai can stop theft.
The potential application of ai in most industries and business practices has led to an increase in spending on the infrastructure necessary to train and operate ai solutions.
That has been a big help for Nvidia. (NVDA) since its software and graphics processing units, or GPUs, are much better suited to handling heavy ai workloads than the central processing units, or CPUs, deployed in most enterprise networks and clouds .
The need to upgrade networks to cope with ai demand has caused Nvidia's sales and profits to skyrocket. Demand for Nvidia's ai chips, including the A100 and H200, drove sales up 206% to $18.1 billion in the third quarter.
The significant increase in revenue, leveraged by fixed costs, translated into equally substantial profits. Nvidia's earnings per share amounted to $4.02 in the third quarter, a whopping 593% more than the same quarter a year earlier.
Nvidia faces challenges in 2024
The market for Nvidia ai chips is global.
For example, China accounts for more than 20% of its data center sales. Unfortunately, that's a problem because the U.S. government is increasingly concerned that China and other foreign powers could buy cutting-edge technology to develop artificial intelligence applications that could one day be used against it.
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To limit the risk, the Commerce Department announced restrictions on sales of high-performance chips to China last year. Concern that Nvidia will not be able to develop an alternative that meets government mandates is one of the main reasons Nvidia shares fell more than 17% last fall.
That's not the only challenge Nvidia faces. It also faces new competition from rival Advanced Micro Devices. (amd) .
Last year, AMD CEO Lisa Su announced plans to develop her own artificial intelligence chips to challenge Nvidia's leadership. Its MI300 chips began shipping this year and demand seems strong.
During AMD's fourth-quarter conference call in January, Su predicted the ai GPU market would grow by an average of 73% annually to $400 billion through 2027. He also said AMD expected to sell $3. 5 billion dollars to data centers this year. compared to a previous forecast of $2 billion.
Nvidia CEO Jensen Huang is taking AMD's threat seriously. His team is developing its own next-generation ai chips to maintain Nvidia's lead in the ai market. In January, they introduced ai chips for PCs that can enhance games and provide ai on the device instead of requiring users to connect to the cloud. Nvidia also said it plans to ship a chip to China that meets government regulations in the second quarter.
Nvidia charts generate new price target
Nvidia's stock price has risen this year ahead of these new chips and the release of its fourth-quarter financial results on February 21.
Last month, Kamich was skeptical about Nvidia's risk-reward despite calculating a price target of $726. Nvidia easily overcame that skepticism, and while it hasn't yet met Kamich's goal, its stock is trading above $700, prompting Kamich to technology/has-nvidia-reached-an-interim-high-16143516″>reevaluate your analysisincluding your pricing targets.
Kamich, a technical analyst, has studied price and volume trends for investor sentiment for 50 years. His latest view on Nvidia remains mixed, with concerns that Nvidia stock has gone too far, too fast, despite a new higher price target that could still mean the stock rebounds.
“The stock is trading above the ascending 50-day moving average and is overbought above the ascending 200-day moving average,” Kamich says. “NVDA extends above the rising 40-week moving average line. Trading volume has declined over the past five months, and that is negative.”
Kamich notes that while the stock may be overbought, the point-and-figure charts reveal another bullish target. Specifically, using a daily P&F chart, Kamich calculated a price target for Nvidia shares of $757.
That target is attractive, but investors should remember that P&F targets are not guaranteed and do not specify timing. Given that the stock is extended, it wouldn't be too surprising if it pulled back at some point to digest some of its gains.
Of course, there's no telling when that will happen. Nvidia's upcoming earnings results are expected to reveal another strong result, but China's excessive restrictions last quarter remains a wild card.
Overall, analysts expect Nvidia to generate revenue of $18.8 billion, a staggering 211% more than a year ago, and earnings of $4.20 per share, up from just $0.88 in the fourth quarter of 2022.
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