Nvidia stock soared nearly 25% Thursday after the company announced standout earnings and predicted its sales would rise to $11 billion for the three months ending in July. Wall Street forecasters had estimated sales were going to be roughly $7.2 billion for that period.
Bank of America analysts, led by Vivek Arya, said the semiconductor giant’s guidance amounts to “the largest raise” they’ve ever seen from a company and is clearly “driven by the start of major data center investments in generative A.I. and large language models.” The analysts lauded Nvidia’s graphics processors that are used in data centers to help power artificial intelligence applications as a long-term cash cow for the company.
Investors have been riding a wave of A.I. euphoria ever since OpenAI released its A.I. chatbot ChatGPT in November and managed to pull in 100 million users faster than any app in history. And while some on Wall Street have started to question the staying power of the recent A.I. boom, Nvidia’s stellar earnings helped legitimize the hype in the minds of many analysts this week.
Bank of America’s team raised its price target for Nvidia from $340 to $450 in a Thursday post-earnings note, arguing the company has established itself as an “A.I. leader” and the market cap is set to soar to “$1 trillion and beyond.” The $450 price target represents a potential 17% price increase from Thursday’s closing price of just over $379 per share.
Bank of America’s Arya has held Nvidia as a “top pick” for investors since June of last year, when he argued that semiconductor stocks were oversold by recession-wary investors. And in a research note earlier this month, Arya gave a $340 12-month price target for Nvidia stock, saying he believed the company’s semiconductors make it the “picks and shovels leader in the A.I. gold rush.”
It hasn’t always been smooth sailing for Nvidia, however. Shares of the chipmaker sank almost 70% between its previous all-time high in November 2021 and its October 2022 trough, as rising interest rates and recession fears weighed on tech and growth stocks. But since then, the A.I. boom has boosted Nvidia shares over 230%. And the latest earnings only confirmed for many investors and analysts that the stock will continue to rise. Nvidia is “uniquely positioned to help transform the nearly $1 trillion of traditional data centers towards accelerated/A.I.-driven computing,” according to Bank of America’s analysts.
To their point, Nvidia CEO Jensen Huang said on the company’s earnings call Wednesday that he is “seeing incredible orders to retool the world’s data centers.”
The praise for Nvidia’s earnings and guidance from Wall Street was widespread as well. J.P. Morgan tech analyst Harlan Sur jacked up his price target for the chipmaker from $250 to $500, implying a potential 31% upside in the stock from its recent close, owing to “accelerating demand” for its A.I.-dedicated data center technology. And Wedbush tech analysts Dan Ives and Matt Bryson raised their price target from $290 to $490, arguing Nvidia’s guidance was “jaw-dropping” and shows the recent A.I. hype has legs.
“For any investor calling this an A.I. bubble, we would point them to this Nvidia quarter and especially guidance which cements our bullish thesis around A.I. and speaks to the fourth Industrial Revolution now on the doorstep with A.I.,” they wrote in a Thursday note.
Michael Sansoterra, chief investment officer at asset manager Silvant Capital Management, told Fortune that the latest batch of so-called generative A.I. tech, which includes chatbots like OpenAI’s ChatGPT as well as image generators like DALL-E 2, is “the largest business transformation since the internet.”
“Nvidia’s Q1 results and forward guidance demonstrate the speed and magnitude of this market disruption,” he said.
Still, Sansoterra warned that government intervention and oversight for A.I. tech will be “more omnipresent and onerous than any other technology adoption curve” and could lead to increased volatility in A.I.-linked stocks. And some analysts have noted that Nvidia’s recent price increase has left the firm with a lofty valuation.
Nvidia currently trades at nearly 220 times trailing 12-month earnings. That’s almost 10 times as high as the average of the tech-heavy Nasdaq Composite. The firm also trades at roughly 28 times sales, compared with an average of 4.4 times sales for the Nasdaq Composite.
“It’s a great company, phenomenal space. A.I. is the place to be, but the valuation is a little stretched…You just have to be careful,” Sarat Sethi, DCLA managing partner and portfolio manager, told CNBC Thursday.
Subscribe to Well Adjusted, our newsletter full of simple strategies to work smarter and live better, from the Fortune Well team. Sign up today.