Nvidia's Surge Continues: Semiconductor Giant Might Dethrone Apple As The 2nd Most Valuable Company

Nvidia, the semiconductor giant driving artificial intelligence tools like ChatGPT, is poised to become the second-most-valuable company globally, giving Apple a run for its money. The company's shares have witnessed an astonishing rally, catapulting its valuation from $1 trillion to over $2 trillion in just nine months, outpacing tech giants like Amazon, Google-parent Alphabet, and energy titan Saudi Aramco.

As of now, Nvidia's market capitalization hovers around $2.38 trillion, trailing Apple by a mere $230 billion and Microsoft by approximately $645 billion. This surge has not only pushed Nvidia to record heights but has also played a pivotal role in propelling Wall Street to new peaks in 2024. With a weightage of over 5% on the benchmark S&P 500 index, Nvidia's relentless rise has become a driving force in the market.

Nvidia, commanding an 80% share of the high-end AI chip market, has been a star performer, with its shares surging by an impressive 95% this year. Alongside Meta Platforms, up 46.6%, these companies have outshone others in what is being referred to as the "Magnificent 7," underscoring investors' insatiable appetite for all things AI.

Richard Meckler, a partner at Cherry Lane Investments, a family investment office in New Jersey, highlighted Nvidia's exceptional rally, stating, "Nvidia's rally reflects the incredibly strong fundamentals underlying its current business model." He pointed out that it has also garnered speculative support, emerging as a favorite among long option buyers witnessing an almost constant upward climb throughout 2024.

While Nvidia soars, Apple, grappling with a slowdown in iPhone sales, recently surrendered its title as the most valuable US company to Microsoft in January, marking the first time since 2021. Nvidia has also surpassed Tesla as Wall Street's most-traded stock by value in recent weeks, underscoring the company's growing influence in the market.

David Wagner, portfolio manager at Aptus Capital Advisors, weighed in on Nvidia's position, stating, "Nvidia is, in fact, the cheapest of the 'AI narrative' stocks out there." He expressed a long-term perspective, anticipating a much larger industry in the next five to ten years than what is currently being projected.

However, there are signs that Nvidia's stock may be approaching its zenith. Wall Street analysts' median target price over the next 12 months suggests Nvidia could trade at $850 per share, a figure below its latest closing price of $926, according to LSEG data. Commenting on this, Meckler acknowledged the challenges, stating, "It is very difficult for any mega-cap stock's price to continue to grow at this pace as the law of large numbers eventually comes into play."

Wagner echoed similar sentiments, emphasizing the importance of Nvidia meeting or exceeding high analyst expectations to sustain its current stock levels. The stock's 12-month forward price-to-earnings ratio of 36.6, lower than a year ago despite the stock's robust performance, suggests that despite its impressive run, Nvidia may need to maintain exceptional performance to justify its valuation.