Nvidia rides AI hype to new all-time high as Q4 earnings season nears

AI hype catapults Nvidia to new all-time high

Nvidia shares jumped 6.5% yesterday to a new all-time high keeping the AI hype alive and increasing bets that 2024 will be another year of massive technology investments into AI. The positive sentiment yesterday was due to Nvidia announcing a new AI chips for personal computers that will allow AI capabilities to potentially expand closer to consumer. One of the key arguments for putting AI chips into personal computers compared to the current model with massive AI chips sitting in gigantic datacentres is that it increases security running AI applications more decentralized. The share price increase yesterday constituted an increase in market value of $79bn. This corresponds to adding the market value of Equinix (the world’s largest operator of datacentres) or Schlumberger (one of the world's largest oil and gas services providers).

Nvidia remains the hottest trade in the US technology sector seen as the most direct and potent exposures to the initial investment boom in AI as Nvidia is leading the industry of AI chips. The high expectations are clearly reflected in the company’s equity valuation which measured on 12-month EV/EBITDA is 23x which is significantly above the MSCI World Index at 12x. The sell-side consensus price target is currently $648 around 24% above yesterday’s closing price. Despite a year of galloping expectations for Nvidia the chipmaker’s astounding results exceeding expectations have created a powerful feedback loop. This is also the biggest danger this year as Nvidia is estimated to increase revenue by a whopping 57% in FY25 (ending 31 January 2025) to reach $92.6bn. One of the key outstanding questions about Nvidia revenue is how much of revenue to China was frontloaded due to upcoming sanctions and thus could pose a hangover risk over the coming year.