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NVIDIA, ARM Gather Momentum

Plus500 | Tuesday 13 February 2024

In a world of ever-shifting market dynamics, the recent boom in the tech sector fueled by artificial intelligence (AI) and the demand for chips is making waves. Let’s take a closer look at the latest stocks boosted by this trend:

An illustration of AI chips

NVIDIA’s Monday Surge

NVIDIA (NVDA), propelled by the excitement surrounding artificial intelligence, briefly surpassed Amazon and Alphabet (GOOG) in market capitalization on Monday, February 12th, becoming the fourth most valuable American company. With a record-high stock price of over $725, NVIDIA's market value reached $1.82 trillion. The last time NVIDIA exceeded Amazon in value was in 2002, over two decades ago. NVIDIA's share price has surged by just under 46% from the top of the year, outperforming the S&P 500 (S&P 500).

The chip designer's dominance in supplying technology for generative AI, demonstrated by blowout quarterly results and robust forecasts, has driven its stock to new heights. NVIDIA's shares have soared more than 230% over the past year, making it the best performer among the "Magnificent Seven" stocks.

NVIDIA's market value surpassed tech giants Amazon (AMZN) and Alphabet thanks to its stock skyrocketing over the past 15 months amid the AI boom. This surge marks a significant transformation for NVIDIA, whose market cap was below $300 billion in October 2022. The company is now the fourth most valuable public firm globally, behind Microsoft (MSFT), Apple, and Saudi Aramco.

What’s Behind NVIDIA’s Recent Highs?

NVIDIA's success stems from its leadership in semiconductor chip technology powering generative AI. The company's explosive growth in the AI sector has impressed investors, with its EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) expanding by over 500% year-over-year. 

Although NVIDIA's revenue and profits trail behind trillion-dollar peers like Apple and Microsoft, analysts anticipate its financials to catch up soon. Some Wall Street analysts even foresee a price target of $800 for the firm, which would entail a further price jump. Investors are eagerly awaiting NVIDIA's upcoming earnings report, with analysts expecting a third consecutive quarter of record sales and profits. (Source: Forbes)

ARM: Britain’s AI Leader

ARM Holdings (ARM), a UK chip designer, has seen a doubling of its stock market value over the past week, driven by investor optimism surrounding the AI boom. The company's latest financial results revealed increased demand for AI-related technology, bolstering its sales. Despite not directly specialising in AI, ARM's chips power nearly every smartphone globally, making it a crucial player in the industry. 

Since returning to the stock market in September, ARM's shares have soared by over 134%, echoing the success of chipmaking industry peer NVIDIA, whose shares have also surged due to AI chip demand. ARM's technology is favoured by companies like NVIDIA and Apple (AAPL) for their CPUs, complementing AI-specific chips. Additionally, the growth of self-driving technology has spurred demand for ARM-designed chips in the automotive sector. SoftBank, which acquired Arm in 2016, initially planned to sell it to NVIDIA in 2020 but faced regulatory hurdles. Now, SoftBank (9984.TY) aims to capitalise on ARM's soaring value by listing shares on the Nasdaq (US-TECH 100) stock exchange. This surge in ARM's shares may have been behind SoftBank’s share price surge of 28% over the past week, following the challenge of losses from struggling investments like WeWork.

Conclusion

In summary, the surge in tech stocks, driven by the AI boom and chip demand, showcases the transformative impact of emerging technologies. NVIDIA's rise to become one of the United States' most valuable companies and Arm Holdings' rapid growth underline the significant role of AI in reshaping market dynamics. These developments highlight exciting opportunities for investors and signify the profound influence of AI on industries globally.


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