Investor concerns eased after Nvidia Corp. shares surged with the stock rising nearly 14% in October, including a 2.4% gain on Monday.
Concerns over product delays and future growth prospects had put shares of the tech company on the back foot, however, Nvidia is the second-best performer in the S&P 500 Index this year and marked its first record close since June yesterday.
The recent stock rebound follows CEO Jensen Huang's announcement that Nvidia’s Blackwell chip is now in "full production" and experiencing "insane" demand.
The chip had previously faced delays due to engineering issues, which led to a temporary selloff.
A report from Morgan Stanley (NYSE:MS) confirmed that Blackwell orders are “booked out 12 months,” and the company enjoys strong business visibility.
These developments reinforce Nvidia’s position as a key player in artificial intelligence, with strong demand for its products.
According to analysts, large companies, including Microsoft Corp (NASDAQ:MSFT), continue to support AI initiatives, with Microsoft expected to increase capital expenditures by about 30% in fiscal 2025 to approximately $58 billion.
“There had been questions about the impact production delays could have, so these updates are reassuring,” Martin Currie Investment Management portfolio manager Zehrid Osmani said.
Optimism around AI
Taiwan Semiconductor Manufacturing Co.’s recent sales have underscored strong demand for artificial intelligence (AI), while OpenAI’s latest funding round valued the company at US$157 billion, reflecting the sector's momentum.
OpenAI also launched an AI model with enhanced reasoning capabilities, an area where Alphabet (NASDAQ:GOOGL) Inc is making strides.
“These developments have reignited interest in the space, with increasing excitement around the potential of reasoning-based AI,” said John Belton, portfolio manager at Gabelli Funds.
“Reasoning introduces a new frontier for Nvidia and given its compute-intensive nature, it could evolve into a significant product category.”
Belton considers Nvidia a core holding and anticipates that AI will drive sustained demand over the long term. “It’s not an undiscovered stock, but if it meets expectations, its valuation remains attractive,” he added.
Nvidia revenue to double
“The stock will remain volatile and orders will be lumpy,” said Dan Flax, managing director and senior research analyst at Neuberger Berman. “But so long as Nvidia executes on its product road map, that will drive the kind of healthy growth that keeps the stock attractive.”
Analysts predict Nvidia’s revenue will more than double this fiscal year, with a further 44% rise expected the following year, based on data compiled by Bloomberg.
Estimates for the company's earnings and profit have been continually raised over the last quarter. Nvidia’s strong growth outlook has kept its valuation relatively balanced.
The stock trades at over 37 times estimated earnings, which, although a premium compared to the Nasdaq 100 Index, is still below its five-year average and a June peak of 44 times earnings.
Osmani highlighted Nvidia’s solid position to capitalise on AI opportunities.
In the options market, signs of optimism have emerged with a notable purchase of call options last Thursday.
These calls allow the purchase of more than 30 million Nvidia shares at prices ranging from $150 to $189 through March, while Nvidia closed at $138.07 on Monday.
The cost of call options compared to bearish put options — a metric known as the skew — has decreased, making it cheaper to bet on Nvidia’s continued rally. These contracts will expire after the company’s fourth-quarter earnings report, expected in late February.