Is Nvidia’s run as the most valuable company over? Experts weigh in

Shares of the semiconductor giant witnessed a sudden decline of 6.7 per cent on Nasdaq in the last two sessions, which erased its market capitalisation (mcap) by over $220 billion and dethroned it from the world’s top stock. On Friday, Nvidia’s market cap stood at $3.1 trillion, below that of Microsoft Corp. (mcap at $3.3 trillion) and Apple Inc. (mcap at $3.2 trillion).

Nvidia shares have seen a bewildering rise over the last year, zooming 194 per cent, almost tripling investors’ wealth. This steep rise in the stock price is because of investors’ strong interest in artificial technology (AI). Nvidia almost has a monopoly on the computer chips essential for AI operations. As the world moves to AI at a faster pace, Nvidia stock, it seems, is rising in sync.

But, will the dream run of the company continue?

Vulnerable to profit booking?

AI will be integral to all key sectors in the coming years. Companies that develop AI technology have bright growth prospects. Nvidia’s transition from making graphics processing units (GPUs) for the video game industry to making chips for the fast-emerging AI industry has proved to be a game-changer.

However, some experts also warn that the exuberance about AI stocks seems to have created a bubble.

“We could be in an AI bubble. Though AI is the next big thing and will shape the world going forward, there is a calculation by Silicon Valley venture capital firm Sequoia that the industries spent $50 billion on chips from Nvidia to train AI in 2023 but brought in only $3 billion in revenue,” Bimal A. Choksi, founder and CIO of Turtle Star Portfolio Managers, told Mint.

“We need to see how this plays out. Sometimes businesses can continue to do good though the stock price can stagnate and have a big disconnect.”

The stock’s rapid rise has made it vulnerable to sudden profit bookings.

According to Amit Goel, co-founder and chief global strategist at Pace 360, Nvidia stock’s outperformance against the broader market has led to concerns that any stumble could lead to a sharp drop in the price. The sharp decrease in Nvidia’s stock price may be due to short-term profit booking.

“The drop also comes amid a broader market retreat as options expire, contracts fall off the board, and S&P Dow Jones Indices shuffle company weightings. ETFs that track its gauges are making similar changes,” said Goel.

Fundamentals intact

Nothing has changed fundamentally for the company, and the stock may rebound from its current levels. Experts point out that the competition among Nvidia, Microsoft, and Apple for market supremacy highlights the tech industry’s dynamic nature, where strategic AI advancements will be a key determinant of market value in the coming years.

“Though the company has been dethroned as the world’s most valuable company, we believe it has all the ingredients to continue its leadership in the global markets,” said Manish Chowdhury, Head of Research, StoxBox.

“The company’s products’ top-notch performance in terms of processing speed and capabilities has made it a preferred vendor for a wide range of applications, including machine learning, IoT, data centres, cloud computing, etc.,” said Chowdhury.

Chowdhury believes that the addressable market opportunity for Nvidia’s products is large and has a big headroom for growth, which should support the company’s earnings trajectory.

“In the ever-changing technology landscape, Nvidia offers a compelling investment opportunity from a medium to long-term perspective owing to its innovation edge reflected in its robust product pipeline, faster and proven adaptability to address changing customer preferences and strong leadership to execute strategic plans,” Chowdhury observed.

Many experts believe the stock may see intermittent profit booking, which should not be read as the end of its dominance.

“Despite the current setback, Nvidia remains a formidable player in the tech industry, particularly in the AI sector,” Manoj Dalmia, the CEO of Proficient Equities, told Mint.

“The recent dip does not necessarily signal the end of Nvidia’s dominance. Its role in powering AI advancements and strong demand for its chips suggests a robust future. As an investor, I believe Nvidia’s innovative edge in AI and continued market demand will keep its growth trajectory strong,” Dalmia said.

With time, Nvidia’s dominance will be challenged. However, the stock is expected to continue its bullish run in the near future.

“One also needs to keep in mind that the rising competition from other AI hardware and software providers could erode Nvidia’s market share and profitability in future,” said Vinod Jhaveri, an independent analyst.

Jhaveri believes Nvidia’s stock price may continue its strong performance for the rest of 2024 and may surpass the $150 mark.

“Nvidia’s stock price is expected to continue its strong performance for the rest of 2024 and can touch $150+. With strong demand for AI Technologies, Nvidia is well positioned to capitalise on it, generating strong revenues and earnings going forward. Moreover, Nvidia’s getting into emerging markets will provide significant growth in the coming years,” said Jhaveri.

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Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.

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Published: 22 Jun 2024, 01:14 PM IST

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