What a week it’s been for Nvidia (NASDAQ: NVDA) stock!
Wednesday’s (27 May) first-quarter earnings report showed a revenue rise of almost 70%. It beat Wall Street estimates, even with a hit on Chinese sales due to export restrictions.
After a $4.5bn charge due to prohibitions on sales to China, Nvidia still hit $44.1bn in revenue. It expects to reach around $45bn in the current quarter.
New high approaching?
The stock jumped on Thursday’s open. And it got a boost from a ruling by the US Court of International Trade blocking President Trump’s tariff plans. That bit was short-lived, as an appeals court later put the judgment on hold pending further legal arguments.
The net effect was a 3.2% rise in Nvidia stock by Thursday’s close, with the price peaking at $143.49 during the day. That’s 6.3% below the all-time high of $153.13 set in January. Nvidia’s market cap ended Thursday just short of $3.4trn again.
Global AI demand
Despite the improving outlook, the pressure isn’t off. The company expects a shortfall of around $8bn in the second quarter due to the ban on exporting its H20 chips to China.
CEO Jensen Huang has warned that restricting AI exports will give China a boost in its efforts to develop its own competitive alternatives. The end result could actually be more global competition against US chip makers.
In a new statement, he said: “Global demand for Nvidia’s AI infrastructure is incredibly strong.” He added: “AI inference token generation has surged tenfold in just one year, and as AI agents become mainstream, the demand for AI computing will accelerate.”
Understandably, he wants to see Nvidia remain at the centre of that.
How high, how soon?
How high can Nvidia stock reach? I think the first question is how soon it can break through and set new all-time highs. I do think it’s a matter of ‘when’ rather than ‘if’, as I see it as almost inevitable. In fact, if it wasn’t for the current international trading uncertainty, I think that top of $153 would already have been left in the dust.
So does that mean I think we should rush out and buy Nvidia? Not necessarily.
Nvidia might effectively be the only game in town right now. But I think Jensen Huang is absolutely on the money with his warning. The crunch could come when, not if, Chinese developers get up to speed and can produce processors close to Nvidia’s on performance.
In this game, Nvidia needs to stay ahead technologically and economically. To do the latter, it needs to be able to fulfill market demand wherever that might be.
Valuation
Saying that, even after this week’s price rise we’re still looking at a forecast price-to-earnings ratio of an undemanding 34. And analysts see it dropping as low as 22 by 2028. If Nvidia can stay ahead and meet those profit projections, it might prove to be a steal even at today’s near-record price. And then who knows where the limit might be?
The risks from developing competition seem clear. But the potential means Nvidia is definitely one to consider in my book.
