Shares of microchip and semiconductor company Nvidia (NASDAQ:NVDA) stock continue to defy gravity, having risen 225% year-to-date and leading the overall market higher in 2023. Despite its bull run, NVDA stock shows no signs of slowing down. NVDA stock rose 14% since October, more than twice the Nasdaq index’s 6% gain.
NVDA stock is the top performer in the S&P 500 index this year, and the company now has a market capitalization of more than $1 trillion. With demand for its microchips and semiconductors growing at a seemingly exponential rate, Nvidia seems unstoppable.
The AI Gold Rush
Much of the increase in NVDA stock this year can be attributed to the current boom in all things related to artificial intelligence. Nvidia is the hands down leader in Ai microchips and semiconductors.
Currently, the company produces 70% of the chips and semiconductors used in AI applications globally. It’s hard to overstate just how important the company’s graphics processing units (GPUs) have become to the AI sector.
Nvidia’s A100 and H100 microchips are needed to build and run AI applications such as ChatGPT. OpenAI, the creator of ChatGPT, is considering making its own microchips and semiconductors because it says it can’t get Nvidia chips fast enough. The massive demand for Nvidia’s microchips has led the company to report several blowout financial reports.
Most recently, the company issued second-quarter financials at the end of August that obliterated Wall Street expectations. Nvidia reported earnings per share (EPS) of $2.70 versus $2.09 that was the consensus expectation of analysts. Revenue in Q2 amounted to $13.51 billion compared to $11.22 billion that had been forecast on Wall Street. Revenue doubled from a year earlier and was up 88% from the previous first-quarter of the year.
The company also raised its forward guidance for this year’s third quarter, saying it expects revenue of $16 billion, which is higher than the $12.61 billion that the company previously forecast. The higher guidance suggests that sales in Q3 will grow 170% from a year earlier. Nvidia is scheduled to report its Q3 results on Nov. 21.
NVDA Stock and the PC Market
Looking to capitalize on demand for AI, Nvidia this past May unveiled a host of new products designed to power current and future AI applications. These include a robotics system, gaming capabilities, advertising services, and networking technologies.
Most impressive was the introduction of a new AI supercomputer called “DGX GH200” that will help technology companies create successors to chatbots such as ChatGPT.
Nvidia unveiled a new chip that boosts data center speed. It presented a robotics platform that powers robots in factories and warehouses worldwide as well.
The products have helped to cement Nvidia’s leadership in the AI space and are expected to further boost the company’s financial results going forward.
More recently, media reports have surfaced that Nvidia plans to begin making microchips for personal computers (PCs), a move that is seen as a direct challenge to rival Intel (NASDAQ:INTC).
Specifically, Nvidia has begun designing central processing units that can run Microsoft’s (NASDAQ:MSFT) Windows operating system. Nvidia is reportedly moving into the market for personal computer chips in collaboration with British chip maker Arm Holdings (NASDAQ:ARM), with plans to begin selling PC chips by 2025.
Other Considerations
If there’s a storm cloud forming on the horizon for Nvidia, it is the Biden administration’s efforts to halt exports of its AI chips to China over fears that Beijing could use the technology to strengthen its military capabilities.
Sales to China had previously accounted for 25% of Nvidia’s revenue. While the company has said that it doesn’t expect a meaningful hit to its financial results, the China ban pulled NVDA stock lower when it was announced earlier this year.
Beyond geopolitics, Nvidia’s board of directors has approved a $25 billion share repurchase program, which is good news for stockholders. Nvidia had bought back $3.28 billion of its own stock in Q2 of this year.
It’s also worth noting that Nvidia’s valuation improved following its blockbuster earnings. The price-earnings ratio of NVDA stock fell to 33 times expected earnings over the next 12 months after its Q2 print, down from 46 previously.
Analysts continue to upgrade NVDA stock and see more room for the company’s share price to run substantially higher. The median price target on Nvidia’s stock among 44 analysts who track the company’s progress is $623.75, which is 34% higher than current levels.
Buy NVDA Stock
Nvidia’s share price has surged due to high demand for AI microchips and semiconductors.
The export ban to China is a mere speed bump for Nvidia, whose growth appears to be accelerating. Long-term, there’s no telling how much the company and its share price will grow. NVDA stock is a buy.
On the date of publication, Joel Baglole held long positions in NVDA and MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
