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Nvidia (NASDAQ:NVDA) stock is up 72% in the past year. Yet in recent months, I’ve seen more concern from some investors about it potentially being overvalued or whether the company can maintain a dominant position in the AI space. But last month, the Nvidia share price popped almost 10%, going some way to silencing recent critics. Here’s what happened.
Factors at play
One factor was the relaxation of the export ban from the US to China of key H20 chips. This had been in place from earlier this year when tensions with China were running high. However, this stance has thawed, with the US confirming that Nvidia could start to resume sales to China, a key market for the company. This reversal will unlock enormous demand from Chinese tech giants. News broke in late July that Nvidia has ordered an additional 300,000 H20 chips from suppliers to meet the likely surging appetite.
Beyond this, in early July Nvidia became the first company in history to surpass a $4trn market cap. This helped to spark a rally as markets digested its prominence as the dominant player in AI infrastructure. Put another way, the significance of passing $4trn caused some FOMO (fear of missing out) from investors, in not wanting to miss any further significant milestones.
Finally, even though Nvidia hasn’t reported quarterly earnings yet, other US tech stocks that have released earnings recently have impressed, mostly down to AI-driven projects. For example, tech bellwethers Microsoft and Meta reported strong results and ramped up AI capital expenditure outlooks. Microsoft’s cloud division and Meta’s capex guidance of around $70bn underlined robust uptake of Nvidia AI infrastructure. Naturally, this helped to lift Nvidia’s shares.
The direction ahead
Nvidia’s quarterly earnings are due to be released at the end of August. This is the main event that should dictate if the stock can keep moving higher into the autumn. Of course, the immediate stock reaction will depend on revenue and earnings relative to what investors expect. This can be seen as the main risk to the stock for the short term. But the medium-term projection will depend on forward guidance to show if AI demand is likely to keep increasing over the next year.
Investors will also look for updates on timelines for the Blackwell GPU architecture. This is seen as a key area of growth for the future. How quickly customer demand is converting into revenue will be a finger on the pulse here.
Aside from earnings, Nvidia stock will also move as a leader for the AI sector in general. If investors become concerned about the pace of growth, cheaper Chinese alternatives or general worries around the stock market, Nvidia is likely to fall further. This is a risk that I think the company will have to deal with for years to come.
Even with this, I still think the stock looks attractive, so think investors could consider it for their portfolios.
