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If anyone had any doubts about whether tech stocks are a good fit, chipmaker Nvidia’s big earnings announcement after the market closed on Wednesday may put that question to rest. The company’s shares rose 7% in after-hours trading.
Benefiting from a strong presence in the artificial intelligence semiconductor market, Nvidia posted adjusted earnings of $5.16 per share on revenue of $22.1 billion in the fourth quarter, which was the consensus of analysts surveyed by Bloomberg. That’s much higher than $4.60 for a certain $20.4 billion. The company’s overall performance for the year ending January 28 was also impressive, with EPS increasing by 486% compared to the comparable period.
Nervousness about Nvidia, which sent the market into the red on Tuesday, continued into Wednesday, with the exchange-traded fund (ETF) Invesco QQQ Trust, the benchmark for closely watched tech stocks, down 0.4% by the close. QQQ soared nearly 1% after the earnings announcement.
Perhaps the feeling that “this is a waste” gripped investors even before its release. Nvidia, which has risen 40% this year, fell 2% in Wednesday trading. The S&P 500 index also fell for most of the day, closing 0.13% higher, but rebounding in the after-hours.
Larry Tentarelli, chief technical strategist at Blue Chip Daily Trend Report, said in a note that the stock has performed well over the long term. The good news is that it has a forward price-to-earnings ratio of 37.55, which is still relatively cheap for a tech stock.
Tentarelli pointed out that, of course, Nvidia “can’t keep growing.” [so fast] Year-over-year numbers will rise indefinitely, but there is still room for growth. His 12-month price target for the company is $875, about a third higher than the current share price ($674 as of Wednesday’s close).
We expect Nvidia to be the main beneficiary of the rapid growth in AI computing. The Magnificent Seven’s fellow tech giants Amazon, Meta, Facebook, and Alphabet are making inroads into his AI space, accounting for about 40% of Nvidia’s revenue.
NVIDIA began posting record results three quarters ago as AI fever took Wall Street and the world by storm. The company’s market capitalization exceeded the $1 trillion mark in June and currently stands at $1.66 trillion.
There are certainly headwinds. China’s once-expanding market has withdrawn chips from foreign manufacturers, and rival Advanced Micro Devices Inc. is developing its own cutting-edge semiconductors.
Tags: advanced microdevices, artificial intelligence, China, Larry Tentarelli, Nvidia, S&P 500, stocks, technology
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