Nvidia close to being first trillion-dollar chip firm on AI use

Nvidia Corp stock has soared about 26 per cent, taking it closer to a market value of $1 trillion after the chip designer’s stellar revenue forecast showed that Wall Street has yet to price in the game-changing potential of artificial intelligence.

Thursday’s surge added to a more than two-fold rise in the stock this year and was set to increase Nvidia’s value by about $196bn to nearly $951bn, putting it on course for the largest single-day value gain for a US firm.

That market capitalization makes Nvidia twice the size of the second-largest chip firm, Taiwan’s TSMC. In the United States, it trails only the trillion-dollar value companies Apple Inc, Alphabet Inc, Microsoft Corp and Amazon.com Inc.

The rosy earnings also sparked a rally in the chip sector and for AI-focused firms, lifting stock markets from Japan to Europe. In the US, Big Tech companies other than Amazon rose 0.7 per cent to 3.5 per cent while Advanced Micro Devices Inc jumped 10 per cent.

Analysts rushed to raise their price targets on Nvidia stock with 27 lifting their view on the idea that all roads in AI lead to the company because it dominates the market for chips used to power ChatGPT and many similar services.

The mean price target has more than doubled this year. At the highest view, a $644.80 price target from Elazar Advisors, Nvidia would have a value of $1.59 trillion, around that of Alphabet.

“In the 15+ years we have been doing this job, we have never seen a guide like the one Nvidia just put up with the second-quarter outlook that was by all accounts cosmological and which annihilated expectations,” Stacy Rasgon of Bernstein Research said.

Nvidia, the fifth-most valuable US company, on Wednesday, projected quarterly revenue more than 50 per cent above the average Wall Street estimate and said it would have more supply of AI chips in the second half to meet a surge in demand.

CEO Jensen Huang said $1 trillion of current equipment in data centres would have to be replaced with AI chips as generative AI is applied to every product and service.

The results bode well for Big Tech companies, which have shifted focus to AI in hopes the technology would help attract demand at a time their profit engines of digital advertising and cloud computing are under pressure from a weak economy.

Some analysts said Nvidia’s results show that the generative AI boom could be the next big driver of growth.

“We’re really just seeing the tip of the iceberg. This really could be another inflexion point in technological histories, such as the internal combustion engine or the internet,” said Derren Nathan, head of equity analysis at Hargreaves Lansdown.

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