Can NVIDIA, which has risen 230% this year, continue to rise?

As one of the key beneficiaries of this round of generative AI, NVIDIA's stock price has experienced rapid and substantial increases over the past two quarters. However, it did not continue to soar after the impressive second-quarter report, reflecting the continuous rise in market expectations during this period and the consideration of various uncertainties in the market.

As a typical semiconductor company, NVIDIA still exhibits obvious cyclical characteristics in the medium to short term. Compared to long-term performance forecasts, the analysis of short-term performance growth and trend inflection points is more meaningful for judging the stock price. Benefiting from the tight supply and demand structure caused by TSMC's CoWoS capacity constraints, NVIDIA's stock price is expected to fluctuate upwards in the short term, with a dynamic valuation of 30x PE serving as an important bottom support.

With the weakening of supply constraints after 2024Q2 and the gradual transition of the AI industry beyond the speculative cycle, it is expected that there will be increasing factors causing disturbances at the company's stock price level, and the volatility of the stock price is likely to amplify. However, centered around the bottom support of $1.2 trillion (corresponding to approximately 30x PE in FY2025), any drastic stock price adjustment in the short term will also provide good entry opportunities.

Stock Price Analysis: Passed the rapid rise phase, expected to find bottom support near 30x PE

In the past five years, even at the low point of the performance cycle, NVIDIA's dynamic valuation has remained above 30x PE, reflecting the market's valuation premium for its competitive landscape and growth potential driven by AI.

With the continuous upward adjustment of market expectations over the past two quarters and the clarification of the main performance factors affecting NVIDIA in the short term, coupled with the suppression of growth stocks due to the recent rise in US bond yields, Citic Securities believes that the period similar to the significant and rapid rise in NVIDIA's stock price in the first half of the year may have passed.

• Short term: It is expected that before 2024Q2, the tight supply and demand structure will continue to bring robust indicators such as order inflow, delivery volume, and unit price, providing good protection for NVIDIA's performance and stock price. During this period, the market is expected to fluctuate around a market value of $1.2 trillion (corresponding to approximately 30x PE in FY2025). A series of important industry events in the second half of the year will constitute the main disruptive variables.
• Medium term: With the continuous expansion of TSMC's CoWoS capacity after 2024Q2, supply is expected to no longer be the main constraint on NVIDIA's performance. This will lead to the cancellation of some false orders received earlier, and at the same time, there will be an increase in disruptive factors from market competition, AI computing power load structure migration, and other aspects. Market divergences are expected to increase, and the company's stock price volatility is likely to intensify. Therefore, after entering this stage, more attention needs to be paid to potential changes and impacts in the AI industry and downstream market demand.

Performance Assessment: Short-term prospects for sequential quarterly growth, with increased medium-term disturbances

1. Currently, sales of NVIDIA data center acceleration cards are still mainly dominated by high-end A100/H100 series cards, with TSMC's CoWoS process capacity being the main constraint. Considering factors such as the delivery cycle of packaging and testing equipment, it is expected that substantial improvement in TSMC's CoWoS capacity should occur around 2024Q2 at the earliest.

In the short term, tight supply is also likely to result in downstream customers placing duplicate or multiple orders. In the short term, in terms of order inflow, delivery volume, prices, and other dimensions, NVIDIA's data center business is expected to maintain strong performance and continue the trend of sequential quarterly growth.

1. Following the Gartner Technology Hype Cycle, technologies typically go through a typical development cycle of emergence, hype, decline, and resurgence. This current wave of generative AI is likely no exception, and market disturbances and stock price fluctuations during this period are difficult to avoid. However, in the medium to long term, NVIDIA's comprehensive layout and overall competitiveness in the field of AI are expected to continue benefiting from the global development of the AI industry.