What happened
Shares of Nvidia (NVDA 3.46%) rose 18.8% last month, according to data provided by S&P Global Market Intelligence, due to a strong quarterly earnings report and positive industry news from its peer group. The growth stock rose and fell throughout February due to broader market forces, but its quarterly results sent shares firmly higher during the last week of the month.
So what
Nvidia's rival Advanced Micro Devices released its quarterly results on the last day of January. AMD indicated significant demand among data center customers, which helped to offset weakness in the consumer PC market. The semiconductor stock climbed following this news, dragging Nvidia higher in the first week of February. Wall Street is excited about Nvidia's long-term opportunity in the data center market, so this news was bullish for both companies. Later in the month, some of those gains were erased as the market tumbled due to rising concerns about high interest rates and economic weakness.
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Nvidia managed to break the late-month slump with a strong earnings report. The chipmaker's revenue dropped more than 20%, and it only modestly topped analyst estimates. However, investors were focused on stellar performance from data center and automotive applications, which are considered two long-term growth avenues for Nvidia.
The company's artificial intelligence segment also generated some buzz, tying into a tech sector trend that has garnered a ton of attention in recent months. Surging interest in ChatGPT and other AI projects has led to significant movement in many high-profile tech stocks. Investors are eager to identify the early winners and losers as these emerging technologies start to bear fruit, and Nvidia was one of the trend's major beneficiaries.
Now what
Investors are struggling to set stock prices amid uncertainty around interest rates and global economic growth. It's hard to tell if tougher times lie ahead, or if most of the damage has already been inflicted. That's creating volatility in the market, especially among growth stocks. It's also driving many investors into high-quality stocks that have strong long-term catalysts. Nvidia certainly fits that description, as one of the dominant players in the semiconductor world and an early leader in growth categories including artificial intelligence, automotive, and blockchain.
Despite experiencing major weakness in the gaming and PC markets, the stock's forward P/E ratio is still above 50. Investors certainly have to pay a premium for quality. Nonetheless, these technology megatrends seem inevitable, and component suppliers will be among the beneficiaries. Nvidia looks to be one of the most likely candidates to generate major cash flow growth as a result.
