Why Nvidia is still seen as worth more than $1 trillion

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Investors are still buying into the notion that Nvidia (NVDA) will have a very hot summer as it cleans up in the generative AI arms race with its performance lead in chips.

That's even with growing geopolitical tensions between the US and China, which has fresh implications for tech.

Nvidia initially hit the $1 trillion market cap level on May 30.

"We continue to see upside to EPS of $10 in [calendar year 2023] for Nvidia (versus consensus $7.49), with our scenario implying growth to $30 by 2027 (at only 20% acceleration attach)," Evercore ISI analyst C.J. Muse wrote in a new client note. "Nvidia remains a top pick with beats and raises along with positive AI-related headlines driving continued momentum for shares through the year (and likely supporting the [semiconductor sector index] SOX higher as well)."

Nvidia is viewed as boasting the pole position in the AI space due to its chips that power OpenAI's ChatGPT platform. The company has also inked high-profile generative AI chip deals with ServiceNow (NOW) and Snowflake (SNOW).

The strong demand triggered a material upward reset in Nvidia's guidance on May 24.

Nvidia said it expects second quarter revenue to come in at about $11 billion, plus or minus 2%. Wall Street was anticipating $7.2 billion.

The Street is currently projecting $11.02 billion in sales for Nvidia's second quarter, according to Yahoo Finance data.

Jensen Huang, CEO of NVIDIA, speaks during a press conference at the Computex 2023 in Taipei on May 30, 2023. (Photo by Sam Yeh / AFP) (Photo by SAM YEH/AFP via Getty Images)
Jensen Huang, CEO of NVIDIA, speaks during a press conference at the Computex 2023 in Taipei on May 30, 2023. (Photo by Sam Yeh / AFP) (Photo by SAM YEH/AFP via Getty Images)

Nvidia's shocking outlook has Wall Street bracing for big, positive guidance from the company when it reports earnings on Aug. 23.

Analysts expect Nvidia to add another $1 billion in sales alone from the second quarter's end to the third quarter's conclusion in October.

Despite the fundamental business momentum and love for the stock among investors, Nvidia's share price hasn't been Teflon in recent weeks.

The company's market cap fell back below the $1 trillion level on reports that the US is planning to impose new curbs on shipments of AI chips to China. The reports suggest the export curbs could begin in July.

Nvidia CFO Colette Kress said at a conference in late June the export curbs "would result in a permanent loss of opportunities for the US industry."

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Analysts have stuck with the company, however, and investors have pushed the valuation back above $1 trillion.

About 88% of the sell-side analysts that cover Nvidia rate the stock a Buy with an average price target of $470. If Nvidia hits that price target, the company's market cap would be about $1.24 trillion.

Pros say Nvidia is in too lucrative of a demand spot to ignore the stock.

"The recent step-function increase in the company’s data center revenue outlook, however, suggests that the company has entered a new phase of growth driven by the emergence and proliferation of generative AI," said Goldman Sachs analyst Toshiya Hari.

Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations or anything else? Email brian.sozzi@yahoofinance.com

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