Market's hottest stock Nvidia hits new all-time high as Wall Street loves gaming, A.I. results

  • Wall Street analysts believe Nvidia has an unstoppable leadership position in the key technology growth trends.
  • Data center results, which drive artificial intelligence use, and gaming-related sales were much better than expected.
  • The stock is the best performer in the S&P 500 over the last 12 months, tripling in value.

Nvidia shares are surging as Wall Street is growing more bullish on the company's opportunities in key secular growth markets.

The chipmaker reported better-than-expected fiscal third-quarter earnings and guidance Thursday.

Its data center segment sales, where its cards are used for machine learning and artificial intelligence applications, came in at $501 million versus the $461 million FactSet consensus estimate. Gaming-related sales also beat expectations with $1.56 billion in revenue versus the $1.28 billion estimate.

The quarter and outlook was "well above our recently raised expectations, with upside coming primarily from the gaming segment," Morgan Stanley analyst Joseph Moore wrote in a note to clients Friday.

Nvidia shares closed at an all-time high Friday, rising more than 5 percent. The stock is up 203 percent in the past 12 months through Thursday compared with the S&P 500's 19 percent gain. That performance ranks No. 1 in the entire S&P 500.

Analysts believe Nvidia has an unstoppable leadership position in the key technology growth trends.

"The most important reason to own NVDA is its 10+ year heritage developing and expanding a single hardware (GPU) + software (CUDA) platform. This platform has proven to be continuously leverage-able in some of the biggest and fastest growing markets in technology including gaming, artificial intelligence (AI), autonomous cars, and virtual reality," Bank of America Merrill Lynch analyst Vivek Arya wrote in a note to clients Thursday.

"NVDA's proprietary CUDA application programming interface has become the de-facto software platform for AI."

Arya reiterated his buy rating and increased his price target to $251 a share from $210, representing 22 percent upside to Thursday's close.

Even the company's skeptics are giving up on their negative views after the results.

"We've been bearish for most of this year, anticipating that a slowdown in gaming would drive sharp revenue deceleration in 2017," Nomura Instinet analyst Romit Shah wrote in a note to clients Friday entitled "Falling On Our Sword and Upgrading."

"However, Nvidia demonstrated good diversity in gaming with Nintendo Switch and crypto-currency, offsetting weakness in core gaming earlier in the year. In addition, Datacenter results have been stronger than forecast and we underestimated the value the market would assign to this franchise."

Shah raised his rating to neutral from reduce and his price target to $190 from $110 for Nvidia shares.

— CNBC's Michael Bloom contributed to this story.

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