Nvidia (NVDA -2.55%) just rocked the technology world. The company provided an outlook for its second quarter that Wedbush analyst Dan Ives called "guidance for the ages."
But the chipmaker didn't add nearly $184 billion in market cap in a single day just because it expects to have one good quarter. Nvidia CEO Jensen Huang said in the first-quarter conference call that he's calling this the company's "iPhone moment." Wall Street agrees.
Everything coming together
Why did Huang call this an "iPhone moment" for Nvidia? When Apple launched the first iPhone, it brought several kinds of technology together for the first time. That's what Huang believes is happening now thanks to generative AI.
Nvidia has been working on developing a full-stack solution for accelerated computing for years. But he said, "[W]hen generative AI came along, it triggered a killer app for this computing platform that's been in preparation for some time." Huang thinks the opportunity this presents for Nvidia is massive.
Few on Wall Street are arguing with him. Baird analyst Tristan Gerra previously had a "hold" rating for Nvidia. He now sees "continued AI-related momentum." As a result, Gerra upgraded the stock to an "outperform" and boosted his 12-month price target from $300 to $475. Nvidia's share price is currently hovering around $385.
Citi's Atif Malik acknowledged that the "generative AI upside was bigger than we expected." He said that Nvidia's outlook could imply that "AI adoption remains in early innings." Malik promptly raised his price target on the stock from $353 to $420.
Ross Seymore with Deutsche Bank remains cautious, still rating Nvidia stock as a "hold." However, he increased his price target to $390 to reflect the huge post-earnings jump.
Seymore is less enthusiastic than many analysts because he's not sure how sustainable Nvidia's growth will be. But he acknowledged, "With Nvidia's unique AI market leadership and the scarcity of alternative plays, we see little that could diminish investor optimism and recommend continuing to enjoy the ride."
Hype or reality?
Just because an executive says it's an "iPhone moment" and analysts go along with it doesn't necessarily make it true. In this case, though, Nvidia's CEO appears to be onto something.
Huang estimates that there's roughly "$1 trillion worth of infrastructure installed" with the world's data centers. He said, "It's all completely based on CPUs [central processing units] and dumb NICs [network interface cards]. It's basically unaccelerated."
Granted, Huang is exaggerating somewhat. One key reason behind Nvidia's tremendous success is that many data centers now use its graphics processing units (GPUs) instead of CPUs. However, his basic point is valid.
We truly could be at the beginning of a transition of the world's data centers to accelerated computing with generative AI as the chief catalyst. Huang thinks this shift could take around 10 years. Even if his timeline is overly optimistic, hundreds of billions of dollars could be spent over the coming years to upgrade data centers. Nvidia will almost certainly be a huge winner from this shift.
Apples and oranges?
Apple released the first iPhone on Jun. 29, 2007. Its stock has skyrocketed more than 40x since then.
Could Nvidia be in store for similarly jaw-dropping gains? The AI stock's previously impressive returns shouldn't be an impediment based on Apple's precedent. Apple's share price had vaulted nearly 1,300% higher in the five years before its initial iPhone launch. Nvidia stock has risen by "only" 520% over the last five years.
However, Nvidia's valuation is much greater now than Apple's was in 2007. At the time of the first iPhone release, Apple's market cap was around $105 billion. Its shares traded at a price-to-earnings (P/E) multiple of 38.5. Nvidia's market cap stands at nearly $940 billion with a trailing P/E of 218 and a forward P/E of 84.
It's quite possible that Nvidia is having an "iPhone moment" but won't see the iPhone momentum that Apple enjoyed. Still, Nvidia's share price could realistically go even higher than it already has. As Deutsche Bank's Seymore said, "Enjoy the ride."