It’s a bubble, but that doesn’t mean it’s ready to pop.
Legendary hedge-fund manager Paul Tudor Jones recently said that the artificial intelligence revolution had become a bubble as companies (and investors) tripped over themselves to increase exposure. He also suggested, however, that we’re not yet at the top — and if he’s right, that could mean more profit-friendly returns for loyal Nvidia shareholders.
Jones isn’t alone in his bullishness. The veteran trader and analyst Stephen Guilfoyle recommended the Santa Clara, Calif., AI-chip maker to TheStreet Pro readers in November 2022, saying he’d acquired shares for his portfolio at a split-adjusted price of about $13 apiece. With Nvidia currently trading near $180, Guilfoyle recently updated his outlook, setting a new, and higher, price target.
Investors may want to pay attention to what Guilfoyle thinks happens next. He’s been actively investing and analyzing stocks since the late 1980s, when he worked on the New York Stock Exchange floor. To be sure, he’s seen his fair share of bubbles come and go, so his opinion is rooted in been-there-done-that experience.
Nvidia rides a runaway AI train to riches
Nvidia CEO Jensen Huang deserves a plaque in Wall Street’s Hall of Fame. Huang has demonstrated an uncanny knack for finding where opportunities will be, enabling Nvidia to establish itself as the market-share leader in everything from videogaming to cryptocurrency mining to, most recently, the artificial intelligence tidal wave.
Nvidia CEO Jensen Huang is riding a wave of AI demand.
Image source: Chesnot/Getty Images
AI is hardly new. Rand Corp. wrote the first AI program in 1956, and Alan Turing contemplated a “thinking computer” in his 1950 paper “Computing Machinery and Intelligence.”
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Over the years, countless books and movies have explored the good and bad that might come from AI, but it’s only after OpenAI’s ChatGPT made shockwaves in 2022 that AI went mainstream.
After ChatGPT launched, it became the app that most quickly reached 1 million users, uncorking a flurry of large-language-model trainings that have led to AI chatbots from Google (Gemini), Anthropic (Claude), Meta Platforms (Llama), Perplexity, and many others.
Chatbots’ ability to quickly parse huge datasets for more useful information has disrupted how people search for information, similarly to how Google search disrupted the market for encyclopedias. However, that only hints at AI’s usefulness.
Banks are using it to hedge risks, trucking companies are using it to improve logistics, retailers are embracing it to improve supply chains, manufacturers are using it to improve quality, and health-care companies are evaluating whether it can help develop better medicines faster. The use cases are seemingly endless and widespread across industries.
As a result, enterprises (and governments) are plowing massive amounts of money from IT budgets into creating AI agents that can assist (and, yes, sometimes replace) traditional workers — potentially accelerating productivity and profitability.
The tsunami has been a boon for Huang’s Nvidia. Its graphic processing units, including its H100, H200 and, more recently, Blackwell lineup, alongside Cuda software and speedy networking gear, have become the de facto backbone for all AI training and inference (a fancy name for when AI models actually get used).
In turn, Nvidia’s sales and profit have skyrocketed. In 2022, when ChatGPT was rolling out, Nvidia’s revenue was $27 billion. This fiscal year? Wall Street’s targeting $206.6 billion. And even as the company has plowed money into R&D, skyrocketing sales have sent earnings per share surging to $4.51 from 39 cents.
Wall Street veteran resets Nvidia stock price target
Nvidia’s rapid sales growth has turned Nvidia into the stock market’s most valuable company, with a market capitalization exceeding $4 trillion (yes, trillion). That’s pretty remarkable. Nvidia is bigger than massive companies like JP Morgan Chase, Amazon, Walmart and ExxonMobil.
And Nvidia might not be done growing yet.
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Most of the training and use of AI are being done on cloud networks owned by Amazon’s AWS, Microsoft’s Azure, Google’s Cloud and Meta Platforms. Demand for computing on those clouds isn’t slowing, forcing those companies (and many, many others) to continue to add capacity, bringing online new data centers packed with Nvidia’s products.
To help fund all this growth, Nvidia has tapped its own cash war chest, making huge investments not only in AI companies — including its $100 billion investment in OpenAI — but also in neoclouds like CoreWeave, which rent GPUs to hyperscalers and enterprises.
The moves have drawn some concern from investors because they create a circular flow —fund the customer so the customer can buy more of your product. Still, the money is real, and for now Wall Street is modeling for significant increases in AI capital expenditures in the coming years — lots of which will go to Nvidia.
“Over time, robotics is expected to extend this automation into physical domains, with new model categories emerging to serve each vertical,” Morgan Stanley analysts told clients after a meeting with Nvidia’s management. “This is all driving its view that the AI infrastructure markets will be” $3 trillion to $5 trillion in calendar year 2030.
Guilfoyle says spending growth will support revenue and earnings when the company reports results next month.
“For the fiscal third quarter, Wall Street is looking for an adjusted EPS of $1.24 on revenue of roughly $54.7 billion,” wrote Guilfoyle in a TheStreet Pro post. “That would compare well to the year-ago comparison of $0.81, while reflecting revenue growth of roughly 56%. This kind of growth would be ‘out of sight’ for almost any other firm, and it is still impressive for Nvidia.”
It might also help drive Nvidia’s stock price higher.
Guilfoyle has set an updated stock price target of $239, assuming the shares can clear $184. His plan is to add more shares if they pull back to the 50-day moving average near $179.
What would be a sign to Guilfoyle to sell? A close below the 200-day moving average, currently near $145.
