What happened
Shares of Nvidia (NASDAQ:NVDA) were gaining today after the chipmaker got an analyst upgrade as excitement around its artificial intelligence (AI) chips builds.
At 11:13 a.m. ET, the stock was up 3.3%.
So what
Nvidia, the leading maker of graphics processing units (GPUs) used for applications including gaming and AI, was climbing on a double upgrade from HSBC as analyst Frank Lee raised his rating on the stock from reduce to buy and lifted his price target from $175 to $355.
Lee said the AI opportunity more than offsets his earlier concern about a slowdown in the data center segment and rising inventory levels.
He also said he's been "shocked" by the company's pricing power with its AI chips, which he believes will support increasing profits and a higher valuation.
Now what
It's hard to doubt Nvidia's prowess in AI chips, as a report just last week said that Elon Musk had acquired thousands of Nvidia's GPU processors for his own AI project, intended to compete with Open AI.
However, Nvidia's valuation does seem like a concern after the stock has surged roughly 150% over the last six months, even as the semiconductor industry is on a broad downturn, plagued by excess inventory, falling prices, and declining demand.
Currently, Nvidia is trading at a price-to-sales ratio of 25, which is expensive for even the most promising growth stocks. However, the company is highly profitable, and it's expected to return to profit growth later this year. If demand for AI chips remains strong, the stock could continue to move higher from here.
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HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends HSBC Holdings. The Motley Fool has a disclosure policy.
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