Nvidia is 'printing money at this point.' What investors are doing after the chipmaker's earnings blowout

Published Sat, Feb 24 20247:13 AM EST

Investors aren't ready to ditch Nvidia just yet. The chipmaker surged 16% on Thursday after posting robust earnings and guidance , contributing to the stock's 59% year-to-date run as investors feast on artificial intelligence stocks. These gains also boosted the company briefly above a $2 trillion market cap during Friday's session. NVDA 1Y mountain Nvidia shares over the last year Nvidia's impressive stock run brings its valuation to elevated levels. That's left some analysts questioning whether earnings upside is already priced in to shares as others wonder how long this astonishing growth cycle can last. Supporters of the stock have stamped out those fears, viewing Wednesday's print as a reconfirmation of their investment case for the juggernaut — and a sign of the stock's long-term runway in the buildout of AI. "The fundamentals really confirm our thesis is very strong," said Hua Cheng, a portfolio manager at Mirova. "Demand is there and what increases their competitive advantage is that they not only have GPUs, but the overall ecosystem behind that." Nvidia's valuation The valuation argument surrounding Nvidia isn't a new concern for the chipmaker. At this time last year, the company's price-to-earnings multiple on a next 12 months basis stood at more than 50, heightening fears among investors. Those worries eased after the chipmaker offered its first set of blockbuster earnings numbers, cementing its formidable AI position. In the quarters that followed, the company showed signs of hot demand for its sought after chips. Over the last year, the price-to-earnings multiple's stooped as low as nearly 24. Now, it sits at 32 and at premium to S & P 500's information technology sector at about 28. When anticipating doubling earnings per share this year and the long-term trajectory of the AI race, Nvidia's multiple looks justified, according to Paul Meeks, co-chief investment officer at Harvest Portfolio Management in Charleston, South Carolina. "You never buy a stock when it's up so much in one day, but the story's going to be legit for a long time," he said, referring to the company's Thursday surge. He recommends buying shares on a dip. NVDA YTD mountain Nvidia's year-to-date gains While the multiple may seem justified, the steep hike in price in recent days hasn't stopping investors from profit-taking. Mahoney Asset Management's Ken Mahoney sold a small amount of his stake in Nvidia as an "investment principle." Anticipating some downward pressure in the near-term on the heels of this week's big move, Greg Bassuk, chief executive officer at AXS Investments, is recommending "taking some chips off the table" despite his bullish long-term view. When will growth slow? For over a year now, Nvidia's led the AI charge as demand for its chip shows no signs of easing, but some investors have cast doubt over how long that boon can last. Most analysts regarded Nvidia's print as an indication that growth cycle is nowhere near its end. The company showed demand continues to outstrip supply and displayed "robust" AI infrastructure and product rollouts poised to power this outperformance, according to Goldman Sachs' Toshiya Hari. "The company is printing money at this point," wrote Bernstein's Stacy Rasgon. "And the prospect for continued growth from here still seems solid." Another notable tidbit confirming this demand resilience stemmed from CEO Jensen Huang. In a conference call with analysts, he noted that inferencing accounted for 40% of Nvidia's datacenter business. Inferencing consists of using an AI model to generate text, images and other content after the initial buildout of a large language model. NVDA 5D mountain Nvidia shares this past week "It gives me confidence that this story lasts much longer," Harvest's Meeks said. "It looks like they will be as strong a player in inference as they were in step one." But this seeming limitless demand cycle for its datacenter business has its bounds. That's worried some investors that once demand dwindles, so may enthusiasm for the stock. UBS analyst Tim Arcuri wrote that while its "too soon" to turn more cautious on the stock, some items in the print signaled slowing revenue growth "on the horizon." But a slowdown in datacenter growth isn't a major concern for Cheng of Mirova. He expects the company to offset potential declines with growth in its automotive business or through the vertical application of its chips into other sectors. Even Nvidia's CEO attempted to alleviate worries over the company's ability to sustain these growth levels through year end, noting that the company GPUs should benefit as the industry shifts away from central processing units. "Fundamentally, the conditions are excellent for continued growth" in 2024, 2025 and beyond, Huang said.