Nvidia Led AI Revolution Fuels Investors’ Dreams: Is There A Limit?

In an era where artificial intelligence (AI) is not just a buzzword but a groundbreaking reality, investors are keenly watching the market for potential winners in this high-stakes race. This has driven tech stocks notably higher, with S&P 500 and Nasdaq-100 reflecting significant gains thanks to investor interest in AI companies' shares.

One company sits at the forefront of this AI gold rush, its name synonymous with the very backbone of AI processes: Nvidia. Well-known for its graphics processing units (GPUs) that have become indispensable for deep learning applications in AI, Nvidia has become a beacon for investors looking for substantial returns. And substantial they have been— a £1,000 investment in Nvidia's stock three years ago has now ballooned to an eye-watering sum of more than £6,000.

The demand for Nvidia's GPUs has been further highlighted by the news of Meta Platforms planning to include 350,000 Nvidia H100 GPUs by the end of 2024 in their operations. This demand is a testament to the pivotal role that Nvidia's technology plays in the AI space. Further echoing this is the partnership of Super Micro Computer with Nvidia, which involves adapting its products in line with Nvidia's new chip releases.

Nvidia's prowess does not simply end at hardware. The company boasts of a comprehensive range of products, including a software platform designed to assist clients with the development and deployment of AI systems. This blend of hardware and software has yielded fruit; in Q4, the company saw its revenue and net income skyrocket, showing triple-digit growth driven predominantly by AI-related demand.

Jensen Huang, Nvidia's CEO, has high hopes, visualizing the transition of the industry to what he terms as “accelerated computing and generative AI” as favorable conditions under which Nvidia will continue to flourish. Mirroring this outlook is Nvidia's commitment to expanding its software business, paralleled by augmented spending on research and development.

Despite the dazzling numbers and ambitious projection, it is necessary to broach the scope of growth. Nvidia's share price growth has been so strong in recent years that to make anywhere near similar gains would be some way off, and not on any analyst radars. An ascent to almost than $2,000 would be required to mirror a triple-digit gain from its current level, which whilst sitting pretty over $850 remains a stretch. This price point would peg the company's market cap at a staggering $5 trillion, an achievement that is undeniably ambitious. The highest analyst price target we can find at this stage is for Nvidia shares at $1200, but the consensus seems to be closer to $900 which is not too far off where we sit today.

The consensus of analysts listed on Nasdaq remains a strong buy, but are we all just too human and too slow to catch up with the pace of Nvidia?

It is wise to remember the pragmatism of investment diversification. In the investment realm, where promise and risk are two sides of the same coin, the diversified approach is often heralded as the path of wisdom. Are we near the top or just scratching the surface of the demand? A question many would like to know the answer to, and Nvidia continues to surprise to the upside.

Investors captivated by the potential of AI may well find the strides made by companies like Nvidia astonishing, and the company's journey in the stock market equally thrilling. We have been equally impressed but caution is the watchword of the day for anyone not already on board.