Nvidia's $260B Surge on AI Splurge, MS Eyes $1K Target

Key Takeaway

• Nvidia's shares surged 15%, adding $260 billion in market cap, driven by Meta, Alphabet, and Microsoft's AI investments.
• Semiconductor sector gains with SOX up 9.7%; Bank of America sees upside to 2024 capex from US hyperscalers' AI buildout.
• Morgan Stanley remains bullish on Nvidia, citing leadership in AI GPUs and sets a $1,000 price target amid a 67% year-to-date surge.

Nvidia's Rally Amid AI Investments

Nvidia Corp. has experienced a significant rebound this week, with its shares increasing by 15%, adding over $260 billion to its market capitalization. This surge is attributed to major clients like Meta Platforms Inc., Alphabet Inc., and Microsoft Corp. announcing substantial investments in artificial intelligence (AI). Paul Marino, chief revenue officer at GraniteShares, emphasized the importance of AI, stating, "The future is AI," and highlighted Nvidia as a primary beneficiary of these investments. This recovery follows a 10% drop in Nvidia's shares last Friday, which was the worst decline in over four years, triggered by concerns over the semiconductor industry's rapid growth and Taiwan Semiconductor Manufacturing Co.'s scaled-back expansion plans.

Semiconductor Industry's Broad Gains

The entire semiconductor sector has seen an uptick, with the Philadelphia Stock Exchange Semiconductor Index (SOX) rising by 9.7% this week. This compares favorably to a 2.8% increase in the S&P 500 Index and a 4% rise in the Nasdaq 100 Index. Bank of America Corp. analysts, led by Vivek Arya, noted that first-quarter reports from key US hyperscalers like Google, Microsoft, and Meta suggest a significant upside to capital expenditures in 2024, primarily driven by the buildout of AI infrastructure.

Strategic Acquisitions and Market Movements

Nvidia's strategic direction includes acquiring two Israeli startups to make its AI chips more cost-effective. These acquisitions aim to reduce the development and operational costs of AI models, potentially enhancing Nvidia's competitive edge in the AI chip market. Meanwhile, Meta's shares fell by 11% after announcing higher-than-expected AI spending, whereas Microsoft and Alphabet managed to reassure investors of the benefits of their AI expenditures. Amazon.com Inc., another significant Nvidia client, is expected to report its first-quarter earnings soon, adding to the market's anticipation of AI's financial impacts.

Investment Perspectives and Future Outlook

Morgan Stanley Wealth Management has expressed confidence in Nvidia's prospects, increasing its position in the company and maintaining an overweight rating. Despite a recent pullback, Nvidia's shares have surged by almost 67% this year, with Morgan Stanley setting a $1,000 price target for the stock. The firm cites Nvidia's leadership in AI GPUs, economies of scale, and pricing power as key factors supporting a premium valuation. Additionally, the growing AI tailwind and the introduction of a new AI chip by Nvidia could lead to upward revisions in earnings expectations, further bolstering the stock's potential.

Street Views

• Paul Marino, GraniteShares (Bullish on Nvidia):

  "The future is AI. And if the largest companies in the world are pouring tens of billions of dollars each into this, I think Nvidia has to be the big winner."

• Bank of America Corp. Analysts lead by Vivek Arya (Bullish on semiconductor industry and indirectly bullish on Nvidia):

  "First-quarter reports from key US hyperscalers - Google, Microsoft and Meta - suggest meaningful upside to CY24 capex, mostly driven by buildout of AI infrastructure."