The US stock earnings season kicks off, with AI leading the market. Is NVIDIA still the best investment target?

According to Zhītōng Finance APP, with the start of the new round of financial reporting season, investors are eager to see how artificial intelligence investments in S&P 500 index constituent companies will generate returns.

Analysts expect profit growth to slow down, with profits of S&P 500 index constituent companies expected to grow by 5.3% compared to the same period last year, lower than the 13.2% growth in the second quarter. Among them, the technology and communication services industries are expected to show the strongest year-on-year growth, with profits in the technology sector expected to grow by 15.4% and communication services sector by 12.3%.

Since last year, AI-related companies have been dominating the financial reporting season, driving a significant market rally. The S&P 500 index is currently at a historical high, up about 21% year-to-date, mainly due to the strong performance of the technology and communication industries.

Howard Chan, CEO of Kurv Investment Management, pointed out that analysts are keen on evaluating how large companies monetize their AI plans, and companies successful in this aspect will receive significant returns. For example, after Meta (META.US) provided strong sales growth expectations, its stock price soared, indicating that its digital advertising revenue effectively funded its AI investments.

Chan added that on the contrary, spending on AI technology by giants like Google (GOOGL.US) has raised questions about their integration with existing business models.

Currently, the forward 12-month P/E ratio for the S&P 500 index is 22.3 times, exceeding the long-term average of 15.7 times. Many investors hope that this quarter's financial reports will prove that higher stock valuations are justified.

Solita Marcelli of UBS Global Wealth Management is optimistic, stating that the upcoming third-quarter financial reports may further drive upward momentum, especially with the semiconductor industry still being a focus of AI investments.

Top Investment Pick: NVIDIA

As the biggest beneficiary of the AI boom, NVIDIA (NVDA.US) stock price has already risen by over 170% year-to-date. However, the market still sees further upside potential for the stock.

In September this year, consulting firm Bain & Company stated that the potential market size for AI hardware and software will grow by 40% to 55% over the next three years. It is projected that by 2026, demand for NVIDIA's next-generation GPU GB200 will reach 3 million units, compared to 1.5 million units for its H100 by 2023.

Morgan Stanley rates NVIDIA as "Overweight" with a target price of $150. Following a three-day non-deal roadshow with NVIDIA CEO Jensen Huang, CFO Colette Kress, and other management team members, Morgan Stanley stated, "The meeting highlighted the scale and length of the accelerated computing runway, with every sign from management indicating that we are still in the early stages of a long-term AI investment cycle."

A report from the bank stated that the Blackwell system NVL36/72 remains the best solution for reasoning interaction requiring significant computation, with Blackwell's production ramp-up progressing as planned, and capacity for the next 12 months already sold out, indicating continued strong performance Bernstein analysts stated that sustainability is the main issue NVIDIA faces after experiencing amazing growth, but "now is clearly not the time to worry."

Melius Research analysts also rated the stock as "buy" with a target price of $165, and pointed out that the company plans to increase production of the Blackwell chip in the fourth quarter