Written by Louis Krauskopf and Noel Landevich
NEW YORK (Reuters) – No stock embodies the U.S. market's artificial intelligence craze more than Nvidia, and Wall Street is locked into its volatile stock price swings.
The semiconductor company whose chips are considered the gold standard in the AI industry announced one of the most anticipated earnings releases in recent memory, reporting first-quarter revenue that exceeded expectations after market close on Wednesday. I expected it to be better.
Given the company's position as an AI industry leader and its weight in US indexes, investor reaction to earnings reports in the coming days will depend on whether risk appetite remains strong with the stock market setting new records. U.S. Treasury yields rose, hitting new highs even as expectations that the Federal Reserve would start cutting interest rates in the coming months faded.
“The reaction to this number could be seen as a referendum on the market itself,” said Paul Marino, chief revenue officer at GraniteShares, which manages an exchange-traded fund that tracks Nvidia's performance. “If Nvidia beats expectations and the stock price still falls, that would tell us people are worried.”
The company's shares rose about 12% in premarket trading Thursday, pushing the company's market valuation toward $2 trillion.
Nvidia stock is expected to triple in 2023 and is up nearly 40% this year on growing excitement about the business potential of artificial intelligence. That makes it a standout performer among the so-called “Magnificent Seven” group of growth and tech stocks that have been a major driver of the market over the past year.
Nvidia surpassed the $1 trillion market capitalization mark in the middle of last year. Earlier this month, the company overtook Amazon and Alphabet to become the third-largest company in the U.S. by market capitalization, but a recent pullback has pushed it back to fifth place.
The company's soaring market capitalization has had a major impact on major indexes including the S&P 500. As of Tuesday's close, Nvidia's stock rally accounted for more than a quarter of the index's 4% rise, which hit a record high earlier this week. Month.
Nvidia's rise comes as the company has achieved significant revenue and profit growth amid an artificial intelligence boom that is fueling demand for its chips. In its latest fiscal year, sales more than doubled to more than $60 billion, and net income soared to nearly $30 billion.
The rapid rise in analyst earnings estimates means that future earnings valuations have declined, even as the stock's price has exploded.
The company's forward P/E ratio was 31 times before Wednesday's press release, compared with 47 times a year ago, according to LSEG data.
Nvidia options late Wednesday were pricing in a roughly 10% move in either direction in the two trading days after earnings, according to data from options analysis service Trade Alert. A 10% change in Nvidia's roughly $1.7 trillion market cap would roughly match the current market cap of Qualcomm or Comcast.
Nvidia's stock price soared 14% and 24% on the same day following its quarterly reports in February and May of last year, but the stock's reaction has been more muted in recent quarters.
Options bets on where Nvidia stock will go in the coming days are wide-ranging, with some traders targeting a drop of less than $500 by the end of this week, while some traders are targeting a drop of less than $500 by the end of the week, while Some traders are betting on a rise to $1,300. Nvidia stock closed Wednesday at $674.72.
Nvidia is the poster child for AI, but it's not the only stock to benefit from excitement about the technology. Shares of companies such as Super Micro Computer and Arm Holdings have soared in recent weeks, but both stocks have fallen recently.
Beyond semiconductors and technology, companies across industries are ramping up their AI efforts. Artificial intelligence was mentioned in 38% of S&P 500 quarterly conference calls in January and February, a slightly higher percentage than in the June quarter, when AI took hold as a prominent industry and market theme.
(Reporting by Lewis Krauskopf and Noel Randewich; Additional reporting by Suzanne McGee and Saqib Iqbal Ahmed; Editing by Ira Iosebashvili and Stephen Coates)