Nvidia (NVDA) stock experienced a notable rebound early Thursday, climbing as much as 2.7%, as Wall Street analysts reaffirmed their positive outlook on the chipmaker.
This resurgence followed a broader market downturn and came despite lingering concerns regarding increased competition and potential slowdown in AI chip demand.
This recent rally indicates investors remain optimistic about Nvidia’s long-term prospects, even as the broader market faces economic headwinds.
Analysts double down on buy ratings
Over the past few days, prominent analysts at firms such as Bernstein, TD Cowen, Morgan Stanley (MS), and Truist (TFC) have reiterated their bullish stances on Nvidia.
Truist Securities’ William Stein, for example, emphasized the company’s strong position, stating, “All relevant industry contacts support the dominance and superiority of NVDA’s full technology stack,” while raising his price target for the stock to $204 from $169.
This continued confidence from Wall Street underscores the perception of Nvidia’s leadership in the AI chip space.
Market volatility and shifting sentiments
Following these affirmations from Wall Street, Nvidia shares initially rallied as much as 4.8% on Wednesday.
However, the stock reversed direction later in the day, closing down roughly 1%, as stocks across the board fell due to Federal Reserve commentary that projected fewer rate cuts and persistent inflation in 2025.
This volatility highlights the impact of broader market conditions on even high-performing stocks like Nvidia.
Furthermore, despite Thursday’s early morning gains, Nvidia’s stock is still down approximately 11% from its record close of $148.88 in early November.
The rise of custom AI chips
Investors have become increasingly concerned about the possibility that Nvidia’s GPUs could lose ground in the AI chip market, given that many of its customers are now developing their own custom chips, according to Yahoo Finance.
Tech giants like Google (GOOG) and Meta (META) have already developed custom chips with Broadcom (AVGO), while Microsoft (MSFT), Tesla (TSLA), and Amazon (AMZN) also have their own custom solutions.
Broadcom’s recent announcement that it is developing chips for two additional clients, believed to be ChatGPT-maker OpenAI and Apple (AAPL), further bolstered Broadcom’s stock and sent Nvidia’s in the opposite direction.
These custom chips, or Application-Specific Integrated Circuits (ASICs), present a potential threat to Nvidia’s GPUs.
ASICs are often cheaper and tailored to a company’s specific AI needs.
A report from Morgan Stanley released on December 15th, projects that custom chips for cloud AI services could grow their share of the overall AI chip market from 11% in 2024 to 15% in 2030.
Nvidia’s market position
Despite the rising competition from custom chips, Morgan Stanley asserts that “history is certainly on Nvidia’s side” when it comes to maintaining its dominance of the AI chip market.
The firm further stated that, “We think ASICs have continued to improve, but Nvidia’s strong execution continues to raise the bar for its competitors.”
This sentiment was echoed by Bank of America semiconductor analyst Vivek Arya, who reiterated Nvidia’s strong position on Wednesday in an episode of the Opening Bid podcast.
Future growth and expansion
Concerns have also emerged regarding a potential slowdown in Big Tech spending on AI chips, which has previously been a key driver of Nvidia’s growth.
Recent earnings reports from Microsoft and Google suggest that their AI spending will grow at a slower pace in the future.
Additionally, there are concerns that the rate of improvement in AI models may also be slowing, which could impact investment.
However, TD Cowen analyst Joshua Buchalter stated that Nvidia is aware of these concerns and “remains confident in the industry’s ability to progress and continue to innovate,” following a recent meeting with the company.
Furthermore, William Stein from Truist Securities believes that Nvidia will announce a standalone CPU (central processing unit) in 2025.
According to Stein, this would open up a $35 billion market opportunity for Nvidia.
Currently, the company utilizes its Arm-based Grace CPUs alongside its Blackwell GPUs in servers but does not sell CPUs individually.
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