Tue, Oct 15, 2024 page12

• Nvidia rides fierce Blackwell demand to record stock close

  • Bloomberg
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  Nvidia Corp’s shares are roaring back after the company successfully calmed investor concerns about product delays and its long-term growth prospects.

  The stock is up almost 14 percent this month, including a 2.4 percent gain yesterday that resulted in its first record close since June, though it remains below an intraday peak. It’s the second-best performer in the S&P 500 Index this year.

  Recent strength came after CEO Jensen Huang (黃仁勳) said Nvidia’s Blackwell chip “is in full production,” and that demand for it “is insane,” comments that came after Blackwell was delayed due to engineering snags, prompting a selloff that has now been erased.

  

  A person walks past the Nvidia Corp logo at Computex Taipei on June 5.

  Photo: Ann Wang, Reuters

  In addition, a report last week from Morgan Stanley analysts who met management said that Blackwell orders “are booked out 12 months or so,” with “every indication that business remains robust with very high forward visibility.”

  The comments cement the view that Nvidia is still a favored way to invest in artificial intelligence (AI), especially as major companies remain committed to their AI initiatives.

  “There had been questions about the impact production delays could have, so these updates are reassuring,” Martin Currie Investment Management Ltd portfolio manager Zehrid Osmani said.

  Beyond the Blackwell optimism, recent sales from Taiwan Semiconductor Manufacturing Co (台積電) showed strong AI demand, while a funding round for OpenAI resulted in a US$157 billion valuation.

  These events “have driven a reinvigoration of interest in the space, and people are really getting excited about the use cases for reasoning-based AI,” Gabelli Funds portfolio manager John Belton said. “Reasoning represents a new area for Nvidia, and when you consider how compute-intensive it is, this could be a huge new product category.”

  Belton views Nvidia as a core holding and sees AI offering “a steady drumbeat of demand” for years. “It’s not an undiscovered stock, but the valuation is still reasonable if it can deliver the numbers that are expected.”

  Analysts expect Nvidia’s revenue to more than double in its current fiscal year, and rise another 44 percent the following one, according to data compiled by Bloomberg. The Street has continually raised estimates for Nvidia’s earnings and profit over the past quarter.

  Nvidia’s strong growth prospects have kept its valuation in check, helping bulls support their case to keep buying. It trades above 37 times estimated earnings, which represents a premium to the NASDAQ 100 Index, but is below its five-year average and under a June peak of more than 44 times.

  “Nvidia still looks formidable,” Osmani said. “It remains really well positioned to harness the AI opportunity.”

  Signs of optimism have also been flashing in the options market. On Thursday, there was a wave of purchases in calls that allow holders to buy more than 30 million shares at levels from US$150 to US$189 through March. Nvidia closed at US$138.07 yesterday.

  The cost of calls relative to bearish put options — known as the skew — has fallen, making it cheaper to bet on a further rally. The contracts won’t expire until after Nvidia’s fourth-quarter earnings release, expected in late February.

  “The stock will remain volatile and orders will be lumpy,” Neuberger Berman Group LLC managing director and senior research analyst Dan Flax said. “But so long as Nvidia executes on its product road map, that will drive the kind of healthy growth that keeps the stock attractive.”
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