Nvidia: how far the S&P 500 locomotive can go, according to city analysts

Last week the holders of shares of Nvidia were witnesses of two eventsthat promise to have a significant impact on the price of the papers of this locomotive of Wall Street that this semiconductor manufacturer became: On Wednesday, the artificial intelligence giant raised its market capitalization to US$3.02 trillionthus, surpassed Manzana and became the second largest company in the world, only behind Microsoftwhich has a “market cap” of US$3.15 billion.

And the projections for Nvidia They can’t be better. On Friday, the firm executed its 10-to-1 stock split, which could serve as a catalyst for a new increase, since what usually happens here is that the paper becomes more achievable for a greater number of investorssince after this process, the share becomes worth around US$108.50 when it previously exceeded US$1,000.

BofA recommends Nvidia

The BofA also confirmed its rating of “buys“for the actions of Nvidia. The bank’s analysts highlight that the firm is uniquely positioned to lead the AI ​​market, valued at US$3 billion. Despite competition from companies like AMD, Intel, and other custom chip makers, it maintains a competitive advantage thanks to its superior performance, broad product portfolio, and strong developer support.

The basis of success lies in Nvidia sells the graphics processing units (GPUs) that other tech companies need to build and train AI algorithms generative or make your data centers capable of handling these new workloads. This means that Nvidia benefits from the expansion of the industry as a wholeso the future looks promising.

It is often mentioned among analysts that if an investor had placed $1,000 in Nvidia shares 10 years ago, Today I would have approximately US$2.3 million, a performance of 23,000%. Although the company is now likely too large to deliver such rapid profits in the future, the next decade could bring many profitable opportunities as artificial intelligence (AI) continues its development, but let’s see what the city’s analysts think.

Optimism based on AI

For Ignacio Sniechowski, Head of Equity IEB Group, “there is no bubble” in relation to artificial intelligence. Although he highlights that there may be some stocks that have a certain level of overvaluation, for the strategist, AI is truly a paradigm shift that will have a very strong impact on the productivity of developed economies, just as happened with the Internet, the PDF and email in the 1990s.

In this sense, the analyst maintains that at IEB they are not only attracted to companies that are on the front line such as Microsoft, Meta and Google, but also to those that provide support solutions such as Nvidia, Taiwan Semiconductors and the Dutch ASML.

Regarding valuations, Sniechowski explains that, Even at the multiples at which they are quoted, “there is a lot of value, given the growth in future earnings that could be expected. “We are just at the beginning of what will be the AI ​​revolution.”

Nvidia’s risks

Not everyone is so optimistic and many strategists are somewhat concerned about market concentration, especially among the companies mentioned above. In that sense, Santiago Ruiz Guiñazú, Head of Equity Sales at Adcap, reveals that, Nvidia It is a company that, given its characteristics, “poses an excessive risk for the retail investing public that is not specialized.”

The analyst justifies his position in that possibly “in the face of a small deviation in the company’s growth plans, the stock could have a significant correction,” which is why he advises getting advice before making an investment decision.

However, he highlights that the potential of artificial intelligence is evident, which is the driving force behind Nvidia’s valuation and the reason why it reached the levels it is at. “The scope of this disruptive technology is still uncertain, especially what has to do with its use and regulation,” he analyzes.

Fed rate cut: turbo for equities

An interest rate cut by the US Federal Reserve could serve as a catalyst, not only for Nvidiabut for equities in generalsince at a lower cost of financing and improved profits on the part of the companies Investment in higher risk instruments is encouraged and that is where the magic happens.

And as he explains to this medium Nicolas RosetGlobal Strategist at Cohen, Nvidia is the big star of the market and “has the foundations to continue growing”, because in addition to being responsible for 32% of the growth of the S&P 500 so far this year, income is expected in its next balance sheet for US$28,000 million, which marks a quarterly growth of 8%.

“Undoubtedly, with an American economy that is not slowing down and a probability of two rate cuts by the Fed for the rest of the semester, they create a good environment” for Nvidia.

Sniechowski, meanwhile, maintains that There is optimism with the interest rate cycle in the US, since the bets are that the cuts will begin in the medium term. “Today, there is a lot of money invested in US Treasury bills of between one and three years, which take advantage of a very interesting return with a very low risk,” he analyzes.

Nvidia performance last five years.jpeg

And he adds that, “when the cycle of lower rates begins, much of that money will go in search of better returns and, therefore, will have to accept more risk.” That risk is probably destined for the equity market. “In this case, future flows to the market, if not black swans, They should increase, supporting the market,” he concludes.

Thus, and from a fundamental point of view, Nvidia shares still represent an excellent opportunity. Both revenue and profits are on the rise, with a suitable valuation. In the next decade, the company’s GPUs could find more applications in automotive automation and robotics, enabling additional growth and much-needed diversification in its revenue streams.

However, There is some reluctance to buy a stock that has already risen too much., especially when remembering the experiences of other technology giants such as Cisco Systems. Although Nvidia has clear long-term potential, investors should exercise caution and make sure to diversify their portfolios.