Nvidia once again managed to shock Wall Street. The chipmaker astonished the investing community for a second consecutive quarter on Wednesday, posting stronger-than-expected results after the bell and delivering another blowout forecast due to surging AI chip demand. The results boosted shares of Nvidia as much as 8%. Positive news also briefly lifted derivative plays Advanced Micro Devices , Marvell Technology , Super Micro Computer and Taiwan Semiconductor Manufacturing last down 7.5%, 6%, 4.5% and about 1.3%, respectively. Nvidia was last up about 2%. NVDA 1D mountain Nvidia rises on earnings The surprising feat is only intensifying the investing community’s confidence in the unrivaled AI chip giant’s dominance, and reasons to own shares. And, while the company may not be the dominant AI chipmaker in town forever, its growth in the space is far from over. “You could be a professional investor for the next 30 years, 40 years and never see another situation like this again – and we haven’t seen anything like this in probably 25 or 30 years,” Josh Brown told CNBC’s ” Halftime Report ” on Thursday. “Maybe it’s a superlative, but I don’t think it’s hyperbolic to say that this is one of the greatest all-time stock stories you could ever be involved with.” Justifying the valuation After a more than 232% jump in 2023, Nvidia shares are on pace for their third best year on record and best yearly stretch since 2001. In recent weeks, the pullback in technology stocks fueled some fears that the AI-spurred rally was losing its steam. The general uptick in these stocks this year has fanned some concerns of a bubble on the brink of a pop. NVDA YTD mountain Shares have more than doubled year to date The rise in Nvidia shares brings its valuation to a steep price-to-earnings ratio of 40 times on a next-twelve-month basis. That’s roughly double the S & P 500 average. On a price-to-sales basis, Nvidia sits at about 37 times. That expensive relative valuation is keeping Nancy Tengler from buying into the stock despite confidence in the long-term AI theme. Marvell Technology is another AI winner the CEO & CIO of Laffer Tengler Investments has been watching that looks too expensive to consider initiating a position, she said. Despite some valuation concerns, Nvidia’s price-to-earnings growth looks reasonable if the company continues to crush numbers and grow at around 40 to 45 times next year’s earnings, said Paul Meeks, a portfolio manager at Independent Solutions Wealth Management. “Investors are hearing it loud and clear that there’s still some runway left,” said Ken Mahoney, president of Mahoney Asset Management. “I know people feel like they missed it, like they can’t involve themselves, but we’re in this hockey stick of growth where Apple was a number of years ago.” Opening and building positions Despite the blowout report, Nvidia gave up some of its gains, while its beneficiaries and competitors slumped into negative territory. Thursday’s moves likely stem from concern over long positions heading into a potential market-moving speech from Federal Reserve Chair Jerome Powell’s remarks in Jackson Hole, Wyoming, on Friday, said Meeks. The fizzle after strong news may also indicate some AI exhaustion, he said. Even so, the moves boosted his case for beefing up his position in Nvidia and other AI plays. In fact, Meeks recommends investors use the market action as an opportunity to open a stake that they can build on during pullbacks over time. He also weighed using the retreat as an opportunity to buy Super Micro Computer and AMD, which are up 223% and 56% this year, respectively. Cerity Partners’ Jim Lebenthal revealed to CNBC’s “Halftime Report” on Thursday that he initiated a position in Nvidia earlier this week to get a “toehold before earnings.” He also recommended that investors use Thursday to initiate positions in a must-own stock. “I can talk about valuation all I want, but this is a stock that’s going higher,” he said. “I don’t care if it gives up today’s gains, today has no relevancy to the long-term prognosis for this stock.”
