Nvidia adds $250bn in value after bumper earnings

Oakland/Bengaluru — Nvidia added $250bn in stock market value on Thursday, on track for Wall Street’s largest one-day gain in history after the heavyweight chipmaker’s quarterly report beat expectations and reignited a rally fuelled by optimism about artificial intelligence (AI).

The company’s stock was last up 15% at $774.18, lifting its market capitalisation to more than $1.9-trillion after its January quarter report late on Wednesday showed demand for its specialised chips used in AI computing continued to outpace analysts’ already-high expectations.

Shares of the Santa Clara, California-based company hit an intraday record high of $780.85 earlier on Thursday.

Nvidia’s results fed new fuel to a global rally in technology stocks linked to AI, propelling the S&P 500, Europe’s Stoxx 600 and Japan’s Nikkei share average to record highs.

Traders had exchanged $47bn worth of Nvidia’s shares up to midday, accounting for more than a quarter of all trading in S&P 500 stocks.

Closing at its current level would make Nvidia’s one-day increase in stock market value the largest in Wall Street’s history, easily beating a record $196bn gain by Meta Platforms on February 2 after the Facebook parent declared its first dividend and posted robust results.

Pulling ahead

Thursday’s gain made Nvidia the US stock market’s third-most valuable company, pulling ahead of Amazon.com and Alphabet after jockeying with the two tech powerhouses in recent weeks.

Microsoft and Apple, valued at $3.04-trillion and $2.84-trillion, respectively, are Wall Street’s two most valuable companies.

Nvidia’s stock has now climbed 57% in 2024, accounting for more than a quarter of the S&P 500's increase year-to-date. That makes Nvidia’s outlook crucial not just for direct shareholders, but for owners of index funds widely held in retirement savings accounts.

“The people who made the most money in the gold rush of the mid-1800s were the ones providing the tools to get the job done, not those hunting for the precious metal,” said Russ Mould, investment director at AJ Bell.

“Nvidia is effectively playing the same role today in this tech revolution.”

Soaring demand for Nvidia’s chips used by companies rushing to upgrade their AI offerings helped the Silicon Valley firm forecast a whopping 233% growth in current-quarter revenue, above market expectations of a 208% rise.

Other chipmakers exposed to AI also rallied, with Advanced Micro Devices jumping 11% and Broadcom adding 5.5%. The Philadelphia chip index rallied 4.9% to a record high.

Nvidia, which controls about 80% of the high-end AI chip market, reported fourth-quarter revenue jump of more than threefold from a year ago to $22.10bn.

Some analysts, however, worried that US curbs on chips sales to China may be hurting its revenue growth. Sales in China amounted to about 9% of Nvidia’s fourth-quarter sales, down from 22% in the prior quarter.

Rapid increases in analysts’ financial estimates mean Nvidia’s forward earnings valuation has fallen, even after its stock more than tripled last year. Ahead of Nvidia’s report, it was valued at about 30 times expected earnings, down from 49 times a year before, according to LSEG data.

Still, many investors worry about the rapid pace of Nvidia’s gains.

“We’ve gotten well ahead of expectations and baked in a lot for the next three years,” said Paul Nolte, senior wealth adviser and market strategist at Murphy & Sylvest.

At least 17 brokerages raised their price targets after results. Among the most bullish, Rosenblatt Securities raised its price target to $1,400 from $1,100, implying a $3.5-trillion stock market value.

UBS cut its price target to $800 from $850, reflecting “some potential slowing in revenue growth.”

Short sellers betting Nvidia’s stock would fall rushed to close those trades on Thursday, said Ihor Dusaniwsky, MD of predictive analytics at S3 Partners.

Short sellers had lost more than $2bn on paper, taking their declines to more than $6.8bn so far this year, Dusaniwsky said.

Reuters