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NVDA Outlook: Why the King of Chip Stocks Won’t Be Dethroned Anytime Soon

Nvidia (NASDAQ:NVDA) stock is having a moment. The world’s most valuable chip maker recently saw its market capitalization surpass $1 trillion. However, with this massive valuation has come concerns that the company’s valuation has gotten ahead of itself.

The company’s success lies in its graphics processing units and software for executing Generative AI tasks. In this new age of artificial intelligence, this positioning is boding very well for investors.

As Nvidia’s chip-making peers struggle to keep up with the demand for more powerful and advanced processors, Nvidia remains a leader in its field.

Its graphics processing units (GPUs) are used in a variety of applications from gaming to AI-fueled autonomous vehicles.

Here are a few reasons why Nvidia remains the king of the semiconductor space, and why that title may be held for some time.

A Trillion-Dollar Valuation May Be Steep

It’s now well-known that Nvidia has achieved a $1 trillion valuation, becoming the first chip maker to reach this milestone. The company’s shares surged after announcing strong second-quarter revenue forecasts that exceeded expectations.

Over the course of a single trading day, Nvidia’s market capitalization went from around $940 billion to more than $1 trillion.

This places Nvidia among the ranks of other mega-cap tech stocks in the trillion-dollar club. According to Bloomberg, Nvidia is the ninth company in history to achieve this valuation.

Nvidia’s success has had a positive impact on other companies in the AI chipmaking supply chain. However, some analysts are skeptical about Nvidia’s rapid growth and consider it a potential “baby bubble” fueled by high interest rates.

Bank of America analyst Michael Hartnett suggests that previous bubbles started with abundant investment but ended when the Federal Reserve raised interest rates.

But There Are Reasons for This Valuation

Nvidia has seen increased interest for reasons outside of the surge in interest around AI. In fact, NVDA stock surged following the announcement of a partnership with Snowflake (NYSE:SNOW).

The collaboration enables Snowflake’s vast customer base to develop personalized generative AI assistants and chatbots using Nvidia’s NeMO toolkit and infrastructure. This integration allows businesses to leverage their collected data for specific inquiries, enhancing their customer experience and operational efficiency.

Nvidia CEO Jensen Huang expressed the significance of the partnership with Snowflake, highlighting the shift towards moving compute to valuable data rather than moving data to the computer.

Snowflake, known for its cloud-based storage of large amounts of unstructured data, has recently acquired Neeva and Streamlit to enhance data search and application development capabilities.

In collaboration with Nvidia, Snowflake has introduced a container service to facilitate the creation of generative AI applications utilizing the data and running them on Nvidia GPUs.

The aim is to enable customers to leverage their enterprise data without the need to copy or transfer it to external systems, as stated by Snowflake’s Senior VP of Products, Christian Kleinerman.

Nvidia Is Reaching the Skies

Nvidia’s exceptional value in the semiconductor industry can be attributed to its software prowess.

While other companies like AMD (NASDAQ:AMD) and Intel (NASDAQ:INTC) focus on chip manufacturing, Nvidia recognized the importance of building a software platform around its designs.

Nvidia’s chips and software became essential for supporting Generative AI applications. Cloud providers, initially relying on inexpensive processors, are now upgrading to Nvidia chips.

Limited supply from Taiwan Semiconductor has resulted in high prices. Nvidia’s AI platform has positioned it as a leader in the AI revolution, akin to Intel and Microsoft, contributing significantly to its value.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.