The current year has been quite challenging for some of the world's largest chip makers. Soured sentiment towards an industry suffering from production constraints has forced investors to sell chip stocks for the past three months.
The benchmark has barely changed over the past three months as selling pressure mounted. For example, hedge funds sold chip stocks all year, pushing their exposure to its lowest level since early 2020, data from prime brokers collected by Morgan Stanley showed last month.
But the story for Nvidia Corp. (NASDAQ:) is different. The largest US semiconductor maker by market value continues to defy these negative pressures. The stock is up more than 20% in the past three months, significantly outperforming the benchmark.
Nvidia weekly chart.
Shares closed at $671.38 on Wednesday, after a gain of 3.2% and hit another all-time high. That impressive run comes after 91% gains from last year. How far this rally will go is anyone's guess, but the company's recent commentary shows that demand for chips used in gaming PCs, data centers and cryptocurrency mining will remain strong in the second half. of the year.
Revenues in the current quarter will be about $6.3 billion, plus or minus 2%, officials at the California-based company said last week, well above analyst consensus estimates.
This bullish forecast came after the company produced a very strong first quarter, again much higher than analysts' consensus estimates. Revenue grew 84% in the first quarter to $5.66 billion and earnings, excluding certain expenses, were $3.66 per share for the period ended May 2
Nvidia reported data center chip sales rose 79% in fiscal first quarter to $2.05 billion from a year earlier. Gaming revenue doubled in the quarter to $2.76 billion.
Crypto Boost
After seeing the stock's surge, the biggest question lurking in the minds of investors is whether they've missed the boat yet: Is it now? too late to buy Nvidia stock?
On a comparable basis, it is not cheap. The stock's P/E ratio is 79 compared to 34 for Advanced Micro Devices (NASDAQ:). And at 39 times future earnings, Nvidia is now also one of the most highly valued chip stocks, at more than twice the average multiple of the semiconductor group.
A key factor that could drive more gains in Nvidia stock is the company's exposure to crypto mining, which is thriving today as demand for digital assets grows globally. The company expects to generate $400 million in revenue from cryptocurrency miners in the second quarter.
More than half of the analysts covering Nvidia raised their price targets in response to the Q1 report, impressed by the company's strong growth momentum and the steps it was taking to address a potential glut in the market if the demand for crypto turns out to be short-term.
Bank of America analyst Vivek Arya said in a note to customers that the first quarter results justified an increase in its estimates and price target for the company, and said splitting the crypto and gaming products should help the improve the overall business. Bank of America, which has a buy rating on Nvidia, has raised its price target for the stock from $700 to $750 per share.
Starting point
Continued strength in Nvidia suggests the stock is on pace to once again outperform its competitors as demand from data centers, gamers and crypto mining remains strong. These catalysts make its stock one of the safest gambling sites in the chip sector, which remains volatile amid supply constraints.
