Shares of graphics chipmaker Nvidia Corp. NVDA wilted amid the tech rout in 2022, with its China exposure exerting further downward pressure. The stock has made a strong comeback this year and has remained fairly resilient amid the market sell-off seen since mid-February.
What's Powering Nvidia Rally? The semiconductor sector downturn seen in 2022 stemmed from the general macroeconomic uncertainty and inventory correction. Nvidia’s stock peaked at $346.47 on November 2021 and pulled back along with the broader market as Fed rate hike fears continued to pressure stocks.
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The weakness continued into 2022 and by the middle of the year, Nvidia was forced to contend with one more risk. The U.S. government’s move to restrict the sale of more powerful chips to China dealt a serious blow to Nvidia. The chipmaker’s bottom line trailed expectations in the June and September quarters of 2022.
The stock ended 2022 with a drop of about 50.3%, a steeper loss compared to the 18.8% pullback by the tech-heavy Nasdaq Composite Index. The turnaround in the stock began ahead of the year-end, having hit a low of $108.13 on Oct. 13, 2022.
Nvidia shares continued to push ahead into the year-end and in 2023.
Nvidia AI Accent Supports Stock: Much of the gains seen this year have been built on the back of the stalling of the deterioration in fundamentals and the AI conversation that perked up amid the Microsoft Corp. MSFT-Open AI partnership.
Even ahead of all this AI chatter, Nvidia was seen as an AI play by analysts. In early 2022, Needham analyst Rajvindra Gill named Nvidia as the firm’s top AI/ML pick for the year. The company is seen as an enabler of the AI revolution that is taking hold.
Team Green’s GPUs power most of the generative AI models currently being used or in the works. OpenAI reportedly used 10,000 Nvidia GPUs To train ChatGPT. Citigroup analysts estimate that Nvidia could rake in $3 billion to $11 billion in sales from increased ChatGPT usage.
Nvidia’s accent on AI is evident from the frequency with which the technology was mentioned in the company’s earnings statement and on the earnings call. Given the sharp rebound in the shares, skeptics bring up the question of whether the stock has gotten ahead of fundamentals.
The average analysts’ price target for the stock is $256.59, according to TipRanks. This suggests an upside potential in the mid-single-digit range.
Nvidia’s 14 annual GPU Technology Conference, or GTC, 2023 is scheduled to be held between March 20 and 23, and it will feature over 650 sessions, including 70 on generative AI alone, VentureBeat reported. The stock could see some momentum going into the event.
Nvidia is part of Needham’s “Conviction List” for 2023, suggesting that the firm expects the stock to outperform the average total return of the broader market and the other securities in its tech coverage universe.
Returns From Nvidia: If an investor had put in $1,000 in Nvidia stock when it bottomed in mid-October, he would have in hand about 9.3 shares. The same 9.3 shares would be worth about $2,241, suggesting a return of 124% over a five-month period.
The return compares to the 43% gain for the iShares Semiconductor ETF SOXX and the roughly 7% gain for the Nasdaq Composite Index.
Price Action: Nvidia closed Wednesday’s session up 0.69%, at $242.28, according to Benzinga Pro data.
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