Shares of Nvidia ( NVDA ) soared higher on Thursday, approaching a milestone that surpassed the $900 mark for the first time. Analysts are revising their valuations of the chipmaker in light of growing AI demand and its strong market position.
Nvidia now tops Apple's $2.6 trillion territory, becoming the world's third-largest stock by market capitalization. The company beat Wall Street's already high expectations for fourth-quarter earnings and forecast 2024 sales to reach roughly $24 billion with implied earnings per share of $5.41.
particularly impressive from an investor's point of view is Nvidia's ability to turn a profit from its chip business. Gross-profit margin increased by more than 12 percentage points to 76%, which is expected to improve further to 77% by the end of April.
While analysts acknowledge Nvidia's dominance in high-end AI chip manufacturing, they are also recognizing the potential for its entry into a new market segment currently dominated by Broadcom ( AVGO ) and Marvel Technologies ( MRVL ).
The market for custom AI data systems, which require bespoke chips, is currently estimated to be around $10 billion and could double by 2025, according to 650 Group. Recognizing this opportunity, Nvidia, led by former AMD and Marvell executive Dina McKinney, is looking to enter this market. Reuters reported last month that Nvidia is in talks with potential customers like Amazon ( AMZN ), Meta Platforms ( META ), and Microsoft ( MSFT ).
The company is also looking for market opportunities for custom silicon in the wireless telecom and automotive industries.
Mizuho Securities analyst Vijay Rakesh, citing potential in the custom silicon market, raised his price target for Nvidia to $1,000 per share and reiterated a buy rating. Rakesh called Nvidia "the biggest AI winner in the near term."
Rakesh and his team also raised their price targets for AI market rivals Broadcom and AMD to $1,550 and $235 per share, respectively, expecting continued multiple expansion amid strong AI demand.
Chip stocks have outperformed the broader tech sector significantly this year, with the Philadelphia SE Semiconductor Index up 19.7%, nearly triple the Nasdaq Composite's 6.8% gain.
In premarket trading, Nvidia shares rose 1.8% to $903.08, extending their six-month gain to nearly 93% and valuing the company at about $2.3 trillion. Broadcom shares rose 1.9% to $1,376.03, while AMD rose 1.1% to $212.99.
Micron Technology ( MU ) also saw a 4.4% rise to $99.80 following an upgrade to buy from holding at Stifel, with analyst Brian Chin raising the price target by $40 to $180 per share.