Nvidia was a touch lower early on Tuesday after strong gains the previous day. Excitement over investment in artificial-intelligence technology looks to be dominant ahead of the chip maker’s earnings next week, as Wall Street analysts and industry participants have pushed back against fears of AI spending being unsustainable.
Nvidia shares were down 0.3% at $129.65 in premarket trading. The stock closed up 4.4% on Monday.
Among other chip makers, Advanced Micro Devices was rising 1.3% in premarket trading, building on gains of more than 4% the previous day when it announced its acquisition of server designer ZY Systems, and Broadcom was down 0.3%.
Nvidia shares have risen 163% this year to date through to Monday’s close. That compares with an 18% rise in the S&P 500 index and a 19% rise in the Nasdaq Composite Index over the same period.
Such a dramatic rise has led to some volatile trading in recent weeks, with the stock dipping below $100 in the wake of a reported delay in shipments of Nvidia’s next-generation Blackwell chips. However, Wall Street is still upbeat on the stock.
“We still expect better results/guidance as checks around AI remain solid, though we note near-term risks around a potential GB200 delay. For Data Center (now >85% of total revenue), AI demand continues to be helped by expanding hyperscale capex plans and commentary from players like Tesla suggesting sustained large GPU [graphics-processing units] purchases,” wrote Susquehanna’s Christopher Rolland in a research note.
Rolland maintained a Buy rating and $160 target price on Nvidia stock.
Nvidia benefits from the AI infrastructure spending of the likes of Microsoft, Amazon.com and Meta Platforms on its chips. However, the question is whether the customers of those companies will continue to spend.
So far, the signs still look promising. Technology-services company UST recently surveyed 600 senior IT decision makers in large companies with combined revenue of more than $10 trillion. In the survey, 89% said their organization would need to increase spending on AI implementation to keep up with competitors.
“One approach to take is…start small, essentially seed fund it and then grow your value and as you save money with AI invest it back in. What happens is you get a virtuous circle that allows you to essentially self fund your AI development,” Heather Dawe, head of responsible AI at UST, told Barron’s.
Still, shareholders might have to wait a little longer to see the fruits of such investment. On average, organizations expect to see a return on investment in AI technology in approximately two years, but almost a quarter expect it to take four or more years, according to the survey.
That compares with Nvidia’s claim that data centers can earn $5 over four years for every dollar they invest in the company’s computing and networking products. That suggests a 50% annual return.
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Originally Posted August 20, 2024 – Nvidia Stock Edges Down Ahead of Next Week’s Earnings. Wall Street Is Pushing Back Against AI Bubble Fears.
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