What happened
Shares of graphics processing unit (GPU) leader Nvidia (NVDA 0.41%) were rising again today, surging 4.9% as of 3:29 p.m. ET.
The renewed rise is somewhat shocking, given Nvidia's massive post-earnings surge about a week ago following its blowout second-quarter guidance. And yet, investors and analysts continue to voice their optimism for the AI leader, despite the stock reaching a near-$1 trillion market cap while trading at over 200 times earnings.
Today, one Wall Street analyst maintained his buy on Nvidia shares, noting the GPU leader is the best way to play the AI boom longer term, perhaps fueling further optimism. Moreover, the apparent resolution of the debt ceiling standoff appears to be luring buyers back into stocks broadly and tech stocks in general.
So what
On Thursday, Truist analyst William Stein maintained his buy rating on Nvidia's shares, despite the stock's 36% rise in the month of May. This is because Stein still sees Nvidia as a better way to play the artificial intelligence boom than some other pretenders that have recently received a lot of attention. Moreover, Stein's channel checks with several Nvidia suppliers led him to conclude, "we expect NVDA is ramping revenue in a wide variety of products," as Nvidia's high-priced high-performance chips remain out of stock across many distributor websites.
Of course, those checks should not have been surprising, given Nvidia's blockbuster guidance that came in more than 50% higher than analyst estimates on May 25.
In addition to the positive analyst note from Truist, the House of Representatives passed the the Fiscal Responsibility Act of 2023 last night, which will raise the U.S. debt ceiling. The bill now seems highly probable to pass the Senate and get signed into law this weekend, avoiding a catastrophic default on the nation's debt.
While it was highly likely Congress would ultimately pass something that would avoid default, a default would have led to a large sell-off in markets and would have likely caused a severe recession. In addition, if severe spending cuts were implemented as part of a deal, that could have also potentially hurt economic growth. However, the final deal seems to have been acceptable to markets, so the removal of that headwind is leading to a "risk-on" sentiment for most stocks today, especially tech stocks.
Image source: Getty Images.
Now what
Nvidia has a clear lead in generalized GPUs, which have the parallel processing capabilities needed for artificial intelligence applications. Furthermore, Nvidia has a bit of a moat around this business in the form of its proprietary CUDA programming platform, which allows developers to program graphics chips for AI and other scientific applications.
So, it's no surprise that investors are very bullish on Nvidia. However, investors should also take caution that a lot of this good news may be priced into Nvidia's stock already.
Taking a skeptic's view, Nvidia management did not repurchase any shares last quarter, even though the business was obviously seeing an influx of new orders. Moreover, two directors on Nvidia's board sold stock over the past week, with Tench Coxe selling $37.9 million worth of stock, roughly 3% of his holdings, and Persis Drell selling about $3 million worth of stock, about 18% of her holdings.
Both of those factors may indicate Nvidia's management thinks the stock fully reflects the new business optimism. Therefore, investors may want to exercise patience before diving headlong into Nvidia stock here. An eventual pullback could very well happen, perhaps leading to a better entry point.
