NVIDIA Stock Surges 45% as Earnings Report Eases China Concerns

NVIDIA Corporation (NVDA.US) has experienced a significant rebound in its stock price over the past two months, surging by more than 45%. This remarkable performance has pushed the AI chip giant's market capitalization back to $3.4 trillion, placing it just behind Microsoft Corporation (MSFT.US) as the second most valuable company globally. The dramatic shift in market sentiment was sparked by a financial report that addressed three major concerns, providing a strong boost to investor confidence.

The recent financial report served as a catalyst for the market's renewed optimism. It addressed concerns about U.S. export restrictions on semiconductors to China, showing that the company's revenue contribution from China in the first quarter had decreased to 13%, and that new procurement agreements in the Middle East had provided a buffer. Additionally, the report clarified that the production ramp-up for the Blackwell chip was progressing smoothly, and that downstream customers, including Microsoft, Meta, Google, and Amazon, were continuing to increase their capital expenditures. These four major clients are expected to spend $330 billion over the next two years, a 6% increase from current levels.

Thomas Martin, a senior portfolio manager at Globalt Investments, stated, "NVIDIA has answered all the key questions with its performance." He added, "Now is a good time to add to positions." Despite the stock price being 8% below its January high, NVIDIA's current dynamic price-to-earnings ratio of 29 times is lower than its 10-year average of 34 times and appears to be a reasonable premium compared to the Nasdaq-100 index's 26 times. Furthermore, its PEG ratio (price-to-earnings ratio relative to earnings growth) is less than 0.9, the lowest among the seven tech giants, reflecting conservative market expectations for high-growth stocks.

Samuel Lains, a macro strategist at WisdomTree, noted, "As long as AI capital expenditure continues to rise, NVIDIA's valuation is unlikely to see a significant correction." He predicts that the price-to-earnings ratio could recover to above 40 times. This view is supported by the majority of analysts, with 78 covering NVIDIA, 8 recommending a "hold" rating, and only 1 suggesting a "sell." The average target price of $170 implies a 24% upside potential.

Compared to the 91% institutional ownership of Amazon, Apple, and Microsoft, NVIDIA's 74% fund ownership is relatively low. Angelo Zino, a senior analyst at CFRA Research, believes that "a large amount of capital will be forced to replenish positions, coupled with the exponential growth in AI computing demand, making it a high-probability event for the stock to reach new highs by 2026."

The trajectory of NVIDIA's stock price is becoming a litmus test for market confidence. As Microsoft secures its position as the market leader through its cloud business, NVIDIA's story of rewriting tech history with two GPU chips may just be beginning.