After NVIDIA's epic surge of 1000%, is the capital temporarily returning to rationality?

The AI chip leader, NVIDIA (NVDA.US), which was dubbed "the most important stock on Earth" by Goldman Sachs, has surged by 240% in 2023 and another 170% since the beginning of 2024. However, the momentum of NVIDIA's stock price surge, benefiting from the unprecedented AI frenzy, seems to have cooled significantly in the short term, prompting investors to weigh whether to cash out, continue to hold, or buy the stock on dips.

Looking at a longer time frame, NVIDIA's stock price has skyrocketed by over 1000% since October 2022, becoming the world's highest market value listed company at one point this week, claiming the title of "global stock king" for the first time. After this 1000% AI frenzy, global funds may shift from irrational exuberance to rational thinking, potentially indicating a short-term downward adjustment or consolidation in NVIDIA's stock price, but it is difficult to change NVIDIA's "long bull trend" in the AI era as the "AI shovel man."

Wall Street analysts bullish on NVIDIA's stock price have emphasized that NVIDIA will continue to rise, potentially hitting $150 or even $200 within the year (as of Thursday's close, NVIDIA's stock price was $130.780). Despite the panic selling pressure from the upcoming "triple witching day" stock options expiration and the profit-taking pressure from retail investors leading to a sharp drop in the stock price on Thursday, analysts at Bank of America believe that the stock still represents a very attractive investment opportunity. Bank of America emphasizes that any degree of decline in NVIDIA's stock should be seen as a good opportunity to buy more shares on dips.

NVIDIA's AI GPUs such as H100/H200/GB200 are the core hardware driving heavyweight AI applications like ChatGPT and Sora. Since 2024, various AI applications such as ChatGPT, Claude, and Sora have seen explosive growth in computing power demand and AI large model iterative training end computing power demand, driving a global wave of AI data center expansion and stimulating a sharp increase in demand for NVIDIA AI GPUs and server AI chips.

In late May, NVIDIA, the AI chip leader dubbed "the most important stock on Earth" by Goldman Sachs, once again announced unparalleled performance that shocked global investors, dispelling concerns about a slowdown in spending by AI-related companies. NVIDIA has once again strengthened the "AI faith" of tech investors single-handedly, driving the continuous rise of US tech stocks and propelling NVIDIA's stock price into a new round of crazy gains, continuously setting new historical highs that astonish investors NVIDIA's Q1 total revenue increased by 262% year-on-year to $26 billion, setting a new historical high in total revenue, with the year-on-year growth rate exceeding 200% for the third consecutive quarter. Benefiting from strong demand for H100/H200 GPUs, NVIDIA's Q1 data center revenue increased by 427% year-on-year to $22.6 billion, also reaching a historical high.

Therefore, NVIDIA, headquartered in Santa Clara, California, stands at the forefront of a massive technological revolution, with global investors betting substantial sums that NVIDIA will become a leader in the AI era. Wall Street expects NVIDIA's revenue to double by the 2025 fiscal year, reaching at least $120 billion, and is projected to further increase to $160 billion in the next fiscal year, possibly even reaching $200 billion. In comparison, Microsoft (MSFT.US), with a market value also exceeding $3 trillion, is expected to see only around a 16% growth in revenue for the current fiscal year.

The remarkable performance of NVIDIA's stock has attracted investors worried about missing out on further gains, leading them to continuously buy NVIDIA shares on dips. However, this has also driven up NVIDIA's stock valuation; for example, its expected P/E ratio has surged by about 80% this year. Even the slightest negative news could potentially trigger a significant short-term pullback in the company's stock price.

"Unparalleled past performance should not be the basis for investment decisions," said Chuck Carlson, CEO of investment firm Horizon Investment Services. "For stocks like NVIDIA that have experienced a surge, it's hard not to make this a significant factor in investment decisions, as people always have a chasing feeling."

NVIDIA's longs and shorts confrontation finally escalates

From 2023 to 2024, NVIDIA's stock performance has rewarded long-term bullish investors with high returns, while skeptical short sellers have faced "sky-high" penalties. The company's stock price has already risen by 170% in 2024, with a market value exceeding $3.2 trillion, surpassing Microsoft and Apple at one point this week, and driving the overall earnings expectations of S&P 500 index component companies higher due to its significant weight. However, with NVIDIA's stock price experiencing a significant pullback on Thursday, short sellers, who had been suppressed, are gradually regaining strength on the eve of "Triple Witching Day," marking the beginning of an escalation in the confrontation between NVIDIA's longs and shorts. Optimistic investors have pointed out that NVIDIA's unbreakable AI ecosystem, built on the CUDA platform and high-performance GPUs, is a key reason for their bullish view on its absolute dominance in the field of AI chips.

The ultra-high performance of NVIDIA's AI GPUs and its continuous involvement in large-scale data center acceleration projects worldwide have solidified its core position in data centers, making it irreplaceable. Moreover, NVIDIA's leading position is almost unshakable due to the NVIDIA proprietary CUDA software framework used by global AI software developers for programming optimization and acceleration of AI processors, as well as for developing AI training/inference systems.

Ivana Delevska, Founder and Chief Investment Officer of Spear Invest, remains optimistic about the long-term prospects of NVIDIA stock. She expects NVIDIA's performance to continue to outperform the general predictions of Wall Street analysts. NVIDIA is the largest holding of the Spear Alpha ETF (SPRX.US), accounting for nearly 14% of the fund.

"If the stock price is skyrocketing like it is now, but the earnings haven't really changed, yes, we would be very worried," Delevska said. "However, NVIDIA's performance growth is very strong, and we are in a fairly stable profit support position."

In fact, according to statistics from LSEG Datastream, NVIDIA currently has an expected P/E ratio of around 45x, only slightly higher than its 5-year average P/E ratio of 41x, despite NVIDIA's expected P/E ratio at the beginning of this year being only 25x. At the same time, this valuation is significantly lower than the astonishing valuation of over 84x about a year ago.

Tom Plumb, President of Plumb Funds, believes that opportunities for NVIDIA's chips beyond the field of artificial intelligence are significantly underestimated. The company has held NVIDIA stock for over seven years and it is the largest holding in two flagship funds. "What we are really discussing is data and ways to access data," Plumb emphasized. "They have the fastest, smartest chip product that can do this, and not just in the AI field."

Furthermore, the forces that are cautious about NVIDIA's stock price are gradually growing, mainly concerned that NVIDIA's future performance may not meet Wall Street's optimistic growth expectations. Analyst Gil Luria from D.A. Davidson stated that NVIDIA has a "truly revolutionary" chip product and has achieved "unprecedented performance growth." However, he rates the stock as "neutral" with a target price of only $90, while the stock price was $130.78 on Thursday.

Looking ahead to the next few years, analyst Luria doubts whether NVIDIA's core customer base, such as computing giants like Amazon AWS, will continue to spend enough money to drive strong growth expectations for the company on Wall Street "The caution towards NVIDIA comes from long-term performance prospects," Luria said. "This unparalleled performance may be difficult to sustain."

Billionaire investor Stanley Druckenmiller stated last month that he reduced his position in NVIDIA in early 2024, saying, "Artificial intelligence may be a bit overhyped right now, but from the perspective of the long-term development of AI technology, perhaps NVIDIA's value is still underestimated."

Carlson from Horizon Investment Services believes NVIDIA should continue to be rated as a "buy," but due to its relatively high valuation, it is unlikely to be included in Horizon Investment's portfolio of around 30 stocks.

Other concerns include NVIDIA's absolute market-leading position in data center AI chips being gradually eroded. Tech giants Microsoft, Meta (Facebook's parent company), and Alphabet (Google's parent company) are actively developing in-house data center AI chips and striving to integrate in-house AI chip computing power into their AI software developer ecosystems and cloud computing service systems, undoubtedly putting pressure on NVIDIA's AI chip revenue expectations.

Analysts from Morningstar stated that core NVIDIA customers such as Amazon, Microsoft, and Meta will eventually seek to reduce their reliance on NVIDIA chips and diversify their supplier base. Morningstar's fair value expectation for NVIDIA is only $105.

Morningstar analyst Brian Colello wrote this month, "NVIDIA currently holds an absolute dominant position in the field of artificial intelligence, and if it can maintain its leading position in the next decade, the company's profitability will be limitless." "However, any signs of successful development of alternative computing products could significantly limit NVIDIA's stock price upside."

From a long-term perspective, the rise of the "most important stock on Earth" may be far from over

As billionaire investor Stanley Druckenmiller pointed out, from the perspective of the long-term development of AI technology, the value of NVIDIA, which may be considered the "most important stock on Earth," may still be underestimated.

Recently, the well-known Wall Street investment firm Rosenblatt released a heavyweight research report, with the core content being: based on the potential prosperity expectations of NVIDIA's software business centered on CUDA, even though the stock price of AI chip leader NVIDIA has skyrocketed in the past year, the stock price of this chip giant is expected to continue to rise in the next 12 months, with NVIDIA's stock price projected to be 50% higher than the current level. This is the view of Rosenblatt's chip industry analyst Hans Mosesmann, who in this report significantly raised the firm's 12-month target price for NVIDIA from $140 to an astonishing $200 per share, ranking it as the highest target price on Wall Street for NVIDIA Rosenblatt's latest bullish forecast also implies that NVIDIA, the "new king of the global stock market" that recently claimed the title of "the world's highest market value listed company," may reach a total market value of $5 trillion within 12 months. Looking ahead, analyst Mosman stated that NVIDIA's strong source of profits comes not only from its AI GPU products focusing on AI hardware infrastructure, but also from NVIDIA's software business. This business, led by NVIDIA's popular CUDA software and hardware collaborative platform, collectively forms NVIDIA's incredibly strong moat, known as "CUDA+AI GPU."

Last month, Beth Kindig, a technology industry analyst from the renowned investment firm I/O Fund, also expressed great optimism about NVIDIA's software business centered around CUDA for revenue generation. Kindig, an analyst at I/O Fund, provided a more aggressive long-term market value outlook for NVIDIA. In a research report released last month, Kindig predicted that by 2030, NVIDIA's stock price could soar by over 200% from current levels, with a market value potentially reaching $10 trillion (NVIDIA's current market value is around $3.2 trillion).

Kindig also projected in the report that by 2027, the total potential market size of the global AI data center market will reach $400 billion, and by 2030, it will reach $1 trillion. She further anticipated that NVIDIA will primarily dominate the data center AI chip market, rather than its largest competitors AMD or Intel. "NVIDIA will take the largest share," Kindig stated. "This is largely due to the CUDA ecosystem and the powerful performance of NVIDIA's AI GPU."

Despite NVIDIA's stock price experiencing panic selling on the eve of "Triple Witching Day" last Friday, along with significant declines under pressure from retail investors taking profits, analysts at Bank of America believe that the stock still represents a very attractive investment opportunity. Bank of America emphasized that any degree of decline in NVIDIA's stock price should be seen as a good opportunity to buy more shares at a lower price.

In their latest report, analysts at Bank of America wrote that investors should continue to be bullish on this chip giant that is driving the prosperity of AI. Bank of America reiterated their "buy" rating on NVIDIA with a target price of up to $150, indicating a potential upside of about 15% in the next 12 months.

Bank of America emphasized in the report that the hardware deployment cycle of Generative Artificial Intelligence (GenAI) could last up to 3-5 years, but it is currently only in the second year. They estimate that NVIDIA has an opportunity worth as much as $300 billion to leverage, which is approximately three times the company's expected revenue for this year. Bank of America also expects NVIDIA's next-generation AI GPU based on the Blackwell architecture to bring significant revenue contributions