Nvidia's $1.5 Trillion Rally: Investors Bet on Continued Growth Amid AI Boom

Nvidia's $1.5 trillion rally has traders primed for more

Gift 5 articles to anyone you choose each month when you subscribe. Nvidia shares have staged a $US1 trillion ($1.5 trillion) rebound in two months -- and investors are betting the rally has further to go as fears about the chipmaker give way to optimism. Last week's earnings report assuaged some key investor concerns: particularly whether US restrictions on the sales of advanced semiconductors in China would derail Nvidia's rapid revenue growth as well as the outlook for artificial intelligence spending, and the firm's ability to expand supply of its newest Blackwell chips.

Nvidia's $1 trillion rally has traders primed to ramp back up

Nvidia shares have staged a $1 trillion rebound in two months -- and investors are betting the rally has further to go as fears about the chipmaker give way to optimism. Last week's earnings report assuaged some key investor concerns: particularly whether US restrictions on the sales of advanced semiconductors in China would derail Nvidia's rapid revenue growth as well as the outlook for artificial intelligence spending, and the firm's ability to expand supply of its newest Blackwell chips. "Those questions have been answered in the positive for Nvidia," said Thomas Martin, senior portfolio manager at Globalt Investments. "It's time to ramp back up your ownership." After soaring for two and a half years amid insatiable demand for its chips used in AI computing, Nvidia shares tumbled in the first few months of 2025 on concerns about President Donald Trump's trade policies and a potential pullback in spending by its biggest customers. Nvidia rose 0.9% on Tuesday, and since an April low, the stock has rallied more than 45%, pushing Nvidia's market value to $3.4 trillion. That's just shy of Microsoft the world's most valuable company. Nvidia shares remain 7% below a record high in January. Despite the big advance, Nvidia trades at roughly 29 times profits projected over the next 12 months, well below the average over the past decade at 34 times. By contrast, the Nasdaq 100 is priced at 26 times despite Wall Street estimates calling for revenue growth this year that's a fraction of Nvidia's. The stock's PEG ratio -- a measure of valuation relative to growth -- is under 0.9, by far the lowest among the Magnificent Seven, which also includes Apple Inc., Amazon, Alphabet, Tesla and Meta Platforms. Of course, Nvidia is still exposed to US tariffs given its chips are manufactured overseas and could be hurt by a deterioration in trade relations with China, a country that accounted for 13% of revenue in the first quarter. However, purchase agreements with governments in the Middle East are seen as offsetting some lost sales and Nvidia's product pipeline is expected to keep competitors at bay. Microsoft, Meta, Alphabet, and Amazon, which together comprise more than 40% of Nvidia's revenue, continue to invest aggressively in AI infrastructure. Capital expenditures for the four companies are projected to reach roughly $330 billion in 2026, up 6% from estimated spending this year, according to the average of analyst estimates compiled by Bloomberg. Amazon's cloud services chief on Friday reiterated the company's plan to aggressively expand its data centers. "We just haven't seen any kind of slowdown in AI spending, and so long as capex keeps moving up, we're unlikely to see the cycle roll over or Nvidia experience much compression to its multiple," said Samuel Rines, a macro strategist at WisdomTree. Nvidia is undervalued, according to Rines, who argues the ratio of price-to-projected earnings for the stock could rise to the high 30s or low 40s. Analysts are widely bullish on Nvidia. Of the 78 covering the stock, eight have hold ratings and only one says sell. The average price target sits at around $170, which would represent a gain of 24% from Monday's closing price, according to data compiled by Bloomberg. Despite its popularity on Wall Street, the stock remains under-owned by market professionals relative to other Big Tech peers, suggesting the potential for more buying in the weeks to come. Nvidia is owned by 74% of long-only funds, according to data from Bank of America published on Friday. This puts it behind Amazon, Apple, and Microsoft, which is the most owned at 91%. The relatively low exposure coupled with demand for more computing infrastructure is likely to drive Nvidia shares higher into 2026, according to Angelo Zino, senior equity analyst at CFRA Research. "There were a lot of investors that really got out of this market prematurely and now they're kind of being forced back into it," Zino said.

Why Nvidia Rallied More Than 24% in May | The Motley Fool

While Nvidia reported an earnings beat late in the month, that post-earnings gain only amounted to a small portion of May's gain. Before the earnings release, Nvidia, like many technology stocks, rallied in a big way when tariff tensions eased in mid-May, after the U.S. and China announced a détente in their trade dispute, paving the way for talks. Around that time, the Trump administration also made deals for significant AI chip sales to the United Arab Emirates and Saudi Arabia. Like many technology and semiconductor stocks, Nvidia rallied in a big way after May 12, when U.S. and China agreed to ratchet down their tariffs on each other. The U.S. lowered its tariffs on Chinese goods from 145% to just 30%, which incorporates the 10% universal tariff and extra 20% tariff meant to penalize China for the flow of fentanyl to the United States. Nvidia, like most stocks, especially technology stocks, rallied on the news, as these stocks had still yet to fully recover after the post-"Liberation Day" stock market crash on April 2. The immediate "relief rally" was soon followed by the announcement of large AI deals the Trump administration struck with both Saudi Arabia and the UAE. In Saudi Arabia, Humain, a division of the Saudi Arabia Public Investment Fund, will build a 500 MW AI cluster, composed of "several hundred thousand" Nvidia GPUs, which will be deployed over the next several years. In addition, a deal was soon reached with the UAE's G42, whereby Nvidia will be able to ship 500,000 Nvidia chips, starting this year. These big deals in the Middle East probably boosted Nvidia's growth expectations, as the current administration also officially nixed the Biden administration's "AI diffusion rule." That rule was supposed to go into effect May 15 and was to limit AI chip sales to certain countries depending on their friendliness to the U.S., as well as the potential for chips to be smuggled to adversaries such as China. Yet while the administration relaxed chip sales to countries such as the UAE and Saudi Arabia, it erected even stronger barriers to China. In April, the Trump administration banned the sale of Nvidia's H20 chip to China, which was a modified version of Hopper deemed appropriate for the Chinese market. But without guidelines for a replacement, Nvidia had to take a $5.5 billion inventory charge to its H20 inventory. Despite the Hopper limitation, Nvidia was still able to beat expectations for its fiscal first quarter ending in April and reported on May 28. In the quarter, revenue grew 69% to $44.1 billion, with adjusted (non-GAAP) earnings per share up 33% to $0.81. The lower profit growth was due to the H20 writedown, but Nvidia was able to beat expectations anyway. All in all, the results seemed to reassure investors that the company should be able to manage geopolitical tensions, and that its supply issues ramping the new Blackwell chip have largely been resolved. After May's recovery, Nvidia trades at 44 times earnings and 31 times forward earnings. That's a reasonable multiple if Nvidia can maintain its dominance in AI systems and find a way to regain some of its lost China revenue. This year, all eyes will be on the company's new Blackwell chip, as well as how Nvidia's customers innovate new and exciting AI use cases. On the risk side, investors should watch for newer custom AI chips designed in-house by the cloud giants, which could continue to take share. While Nvidia is currently the dominant standard in neutral GPUs that work for a variety of uses cases, the emergence of custom chips that can run workloads at much lower prices could eventually slow down Nvidia's torrid growth. So with Nvidia's stock now back closer to all-time highs, the risk-reward is more balanced today.