NVIDIA's Stock Rallies Near Record High on AI Optimism and Blackwell Chip Success

NVIDIA's stock price has rebounded significantly this month, rising over 18% and approaching its closing historical high in June, making it the second-best performing stock in the S&P 500 index.

This growth is mainly attributed to the company's successful efforts to allay investors' concerns about product delays and long-term growth prospects. CEO Jensen Huang announced that the Blackwell chip is now in full production with strong market demand. A report from Morgan Stanley also supports this optimistic outlook, noting that orders are booked for 12 months, and the business and prospects remain robust.

As a result, NVIDIA's position as the investment of choice for artificial intelligence has been further consolidated, especially against the backdrop of major companies like Microsoft increasing their investment in artificial intelligence. It is understood that Microsoft expects to increase capital expenditure by nearly a third in fiscal 2025, to about $58 billion.

Zehrid Osmani from Martin Currie Investment Management said that concerns about production delays have been alleviated. In addition, sales from TSMC and high-valuation financing from OpenAI also reflect the strong market demand for artificial intelligence.

John Belton, portfolio manager at Gabelli Funds, believes that the use cases of reasoning-based artificial intelligence have reignited market interest, which could bring a huge new product category for NVIDIA. Belton sees NVIDIA as a core holding and believes that artificial intelligence will bring steady demand for years. This is not an undiscovered stock, but if it can achieve the expected numbers, the valuation is still reasonable.

Data shows that analysts expect NVIDIA's revenue to more than double this fiscal year and to grow by another 44% next fiscal year, with Wall Street continuously raising its earnings and profit forecasts for NVIDIA. This indicates that NVIDIA's growth prospects are very strong, which supports its stable valuation and enhances investors' confidence to continue buying. Although the company's price-to-earnings ratio is about 37 times, higher than the Nasdaq 100 index, it is at a lower level compared to the five-year average and the peak of over 44 times in June.

Osmani, portfolio manager at Martin Currie Investment Management, believes: NVIDIA still looks very strong, and it is in a very favorable position to seize the opportunities in the field of artificial intelligence.

There are also positive signs in the options market. On Thursday's trading, there was a buying spree with more than 30 million shares being purchased at prices ranging from $150 to $189 per share, with these options expiring in March. NVIDIA's stock closed at $134.80 on Friday's trading.

Moreover, the cost of call options relative to put options (the so-called skew) has decreased, making it cheaper for investors to bet on further stock price increases. These option contracts will expire after NVIDIA is expected to release its fourth-quarter earnings report at the end of February.

Dan Flax, Managing Director and Senior Research Analyst at Neuberger Berman said: The stock will remain volatile and orders will be lumpy, but so long as NVIDIA executes on its product road map, that will drive the kind of healthy growth that keeps the stock attractive.