Nvidia (NASDAQ:NVDA) is on the verge of overtaking Apple to become the world’s second-most-valuable company, driven by investors’ strong interest in the semiconductor maker, whose chips power popular artificial intelligence tools like ChatGPT.
A remarkable surge in Nvidia’s shares, fueled by AI-related optimism, has propelled the company’s valuation from $1 trillion to over $2 trillion in just nine months. Along the way, it has surpassed Amazon.com, Google-parent Alphabet, and Saudi Aramco in market capitalization.
Currently, Nvidia’s market cap stands at around $2.38 trillion, trailing Apple by approximately $230 billion and Microsoft by about $645 billion.
The relentless rise in Nvidia’s shares, commanding 80% of the high-end AI chip market, has significantly boosted Wall Street’s performance this year, with the company now accounting for over 5% of the S&P 500 index.
Nvidia’s 95% surge, along with Meta Platforms’ 46.6% increase this year, has outpaced other members of the so-called Magnificent 7, reflecting investors’ strong interest in AI-related companies.
“The rally in Nvidia’s shares underscores the strong fundamentals of its current business model,” said Richard Meckler, a partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey.
“It is also receiving strong speculative support from long option buyers who have witnessed an almost uninterrupted upward climb throughout 2024.”
Meanwhile, Apple, facing sluggish iPhone sales, lost its position as the most valuable U.S. company to Microsoft for the first time since 2021 in January.
Recently, Nvidia also surpassed Tesla as the most traded stock by value on Wall Street.
Despite its strong performance, Nvidia’s 12-month forward price-to-earnings ratio of 36.6 is lower than it was a year ago, as analysts have raised profit estimates.
Compared to Intel’s PE multiple of 30.24 and the Philadelphia SE Semiconductor Index’s 39.6, Nvidia appears to be the most attractively priced among the “AI narrative” stocks, according to David Wagner, portfolio manager at Aptus Capital Advisors.
“We believe that in five or ten years, we will be discussing an industry that is significantly larger than the figures being mentioned today,” Wagner added.
However, there are indications that Nvidia’s stock may be approaching its peak.
Over the next 12 months, the median target price predicted by Wall Street analysts implies that Nvidia would trade at $850 per share, below its last closing price of $926, according to LSEG data.
“Continued rapid growth at this pace is challenging for any mega-cap stock, as the law of large numbers eventually comes into play. However, if the company can continue to meet or exceed analysts’ high expectations, the stock price could remain at these levels,” Meckler concluded.
Featured Image: Megapixl
Author Stephanie Bédard-Châteauneuf