Nvidia results burnish AI rally, lift global tech shares

The results were powered by an artificial intelligence (AI)-led boom in demand for its chips

(Reuters) - Shares of Nvidia (NVDA.O) jumped 8.5% in premarket trading on Thursday, lifting tech shares around the world, after the company forecast quarterly revenue that smashed expectations and announced a $25 billion buyback.

The results, reported late on Wednesday, were powered by an artificial intelligence (AI)-led boom in demand for its chips, and will boost the position of the world's first trillion-dollar market value chip firm.

Nvidia's shares rose to $510.14 in premarket trading, set to surpass a record high of $481.87 hit earlier this week. They have tripled in value this year.

"Bears will be arguing that at some point, the valuation will start to appear full. Luckily for Nvidia, a cursory glance would suggest there aren’t many bears around,” said Hargreaves Lansdown analyst Sophie Lund-Yates.

More than 20 brokerages raised their target price on Nvidia after the earnings, according to Refinitiv data, with Elazar Advisors being the most bullish at $1,600.

That represents another three-fold increase in the stock's value from current levels.

Analysts' median price target on the stock, however, is $600, with Rosenblatt Securities' target of $1,100 the only other one above $1,000, according to Refinitiv data.

Nvidia has been the biggest beneficiary of the rise of ChatGPT and other generative AI apps, virtually all of which are powered by its graphics processors.

Nvidia trades at about 39 times the consensus earnings for the next 12 months, compared to a forward price-to-earnings ratio of 80 in May when it forecast a more than 50% revenue growth, Refinitiv data showed.

"Everyone has been looking for ways to play AI that aren't as expensive as Nvidia given the run this year. However, in our opinion NVDA itself remains the best way to accomplish that," said Bernstein analysts led by Stacy Rasgon.

"Given the magnitude of earnings revisions, we suspect the stock will still come out cheaper than it was going into the print."

The results are also keeping a Wall Street rally alive, with futures tracking the tech-heavy Nasdaq 100 jumping more than 1%, while S&P 500 futures rose 0.7%.

Shares of AI-related chip stocks including Nvidia rival Advanced Micro Devices (AMD.O), Micron Technology (MU.O), Broadcom (AVGO.O) and Marvell Technology (MRVL.O) rose between 2.8% to 5.4% premarket.

Elsewhere, shares of Taiwan Semiconductor Manufacturing Co (TSMC) (2330.TW), which supplies to Nvidia, rose 2.2%.

European chip companies also rose, with ASM International, BE Semiconductor and Aixtron gaining nearly 2% each. Europe's tech index (.SX8P) was up 1.1%.

"Nvidia news has a boosting effect on technology stocks, if only by confirming that all the talk around the AI-craze was not empty, after all," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

A lot rested on Nvidia posting strong results, as most of the S&P 500's over 15% year-to-date gains have come from the AI-driven rally in Nvidia and other Big Tech stocks.

Investing.com analyst Thomas Monteiro said Nvidia's results validated "the narrative that has been propping tech stocks in general this year."