Nvidia's blowout forecast adds fresh fuel to AI rally

FILE PHOTO: A view of a Nvidia logo at their headquarters in Taipei, Taiwan May 31, 2023. REUTERS/Ann Wang/File Photo

By Aditya Soni and Gokul Pisharody

(Reuters) - Nvidia rallied 9% on Thursday as its bumper revenue forecast reinforced investor confidence in the AI-driven boom in chip demand, lifting shares across the semiconductor sector.

Expectations were high for Nvidia with its shares trading near record highs in the run-up to earnings. The results also capped a strong quarter for U.S. technology giants, including Microsoft, with AI emerging as a major growth driver.

"Companies are continuing to increase their capital expenditures, particularly Big Tech, to keep up with this revolutionary technology, and Nvidia is by far the biggest beneficiary," said Josh Gilbert, market analyst at eToro.

The company also unveiled a 10-for-one stock split on Wednesday and lifted its quarterly dividend by 150% as demand continues to exceed supply for its high-end chips that power virtually all AI applications, including OpenAI's ChatGPT.

FILE PHOTO: NVIDIA logo is seen near computer motherboard in this illustration taken January 8, 2024. REUTERS/Dado Ruvic/Illustration/File Photo

Already the world's third-most valuable firm, Nvidia was set to add $210 billion to its market value of $2.335 trillion. Its shares rose above $1,000 and a close above that level would mark a major milestone for the company whose stock has rallied more than 90% this year after more than tripling in 2023.

Thursday's jump also followed a prediction from Taiwanese contract chipmaker TSMC, a major supplier to Nvidia, of 10% annual growth in the global semiconductor industry, excluding memory chips.

TSMC's U.S.-listed shares were trading 1.9% higher, while other AI-focused semiconductor stocks such as Advanced Micro Devices, Arm, Broadcom and Super Micro Computer gained between 2.2% and 9.2%.

Analysts cheered remarks from Nvidia executives that its new Blackwell AI chips would start shipping in the current quarter and demand for the processors might exceed supply "well into next year."

CEO Jensen Huang told Reuters that he expected new AI models that are capable of creating video and engaging in human-like voice interactions to spur more orders for Nvidia's processors.

"With competition years behind, we believe Nvidia can comfortably defend and maintain its market share," said Ido Caspi, research analyst at Global X, which invests in Nvidia.

"The ongoing Hopper (Nvidia's current chips) demand should help alleviate investor concerns about customers potentially delaying purchases in anticipation of the Blackwell transition."

Analysts also said the stock split could make Nvidia more appealing to retail investors after a decline in interest this year.

At least 28 of the 58 brokerages raised their price targets on the stock, pushing up the median view to $1,180, according to LSEG data.

Nvidia has a 12-month forward price-to-earnings ratio of 34.7, compared with AMD's 38 and Super Micro Computer's 26.8.

(Reporting by Aditya Soni and Gokul Pisharody in Bengaluru; Additional reporting by Siddarth S and Shubham Batra in Bengaluru, and Danilo Masoni in Milan; Editing by Amanda Cooper, Krishna Chandra Eluri and Anil D'Silva)