As Customers Seem Locked in, Nvidia's Stock Shoots to Its First Record High in Months

Nvidia Corp. investors have another reason to feel optimistic about the company's future. According to TD Cowen analyst Joshua Buchalter, Nvidia’s customers in the artificial intelligence (AI) sector are stuck in what he calls a “prisoner’s dilemma.” This dynamic is working in Nvidia’s favor, as each of the company’s large-scale customers is highly incentivized to continue spending on Nvidia’s AI hardware. The consequences of cutting back or delaying investment in Nvidia’s products could be extremely damaging for these companies, driving a continued demand for Nvidia's hardware solutions.

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Buchalter explains that this ongoing demand is a major plus for Nvidia, especially as it moves from its current Hopper chips to the new Blackwell chip lineup. Despite concerns from investors about possible delays in the release of Blackwell chips, Buchalter remains optimistic. He believes Nvidia can manage any potential delays, and its Hopper chips are well-positioned to fill any temporary gaps that might arise before Blackwell becomes fully available.

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This scenario could actually be beneficial for Nvidia in terms of its financial performance. Buchalter points out that if Hopper chips remain in demand for a longer period, this could have a positive impact on the company’s gross margins. Nvidia has previously mentioned that the supply chain for the Blackwell chips is still relatively immature, which could create short-term challenges for margins. However, continued reliance on the more mature Hopper lineup might mitigate those concerns, allowing Nvidia to maintain its profitability during the transition.

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In the stock market, Nvidia’s shares showed strong performance on Monday, rising by 2.4% to reach a recent price of $137.96. The stock is approaching record highs, and if it continues on this trajectory, it could close at an all-time high soon. Nvidia’s shares briefly traded above $135.58 last Friday, which is the threshold needed to secure a new closing record, but ultimately finished the session flat. The last time Nvidia’s stock closed in record territory was on June 18, but the current momentum suggests that the stock may be on the verge of breaking out to new highs.

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Ben Reitzes, an analyst from Melius Research, is also bullish on Nvidia. He was particularly impressed by the public appearances made by Nvidia’s Chief Executive, Jensen Huang, in recent weeks. Reitzes notes that many top executives of major companies don’t frequently make public appearances, but Huang’s presence and willingness to engage with the public is a sign of confidence. Huang has shown he is highly invested in both the company’s strategy and in its shareholders. His public appearances highlight Nvidia's strategy, which Reitzes believes is far ahead of the competition, giving the company little reason to be secretive.

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One of Huang’s key discussions was on the BG2 podcast, where he elaborated on Nvidia’s “moat.” A company’s moat refers to its ability to maintain a competitive advantage over rivals, and Huang highlighted how Nvidia’s Cuda software and NVLink networking technology contribute to maintaining this edge. Reitzes emphasized that Nvidia’s ability to maximize return on investment is not just about cutting-edge hardware; it’s about continuously optimizing its algorithms and integrating them with older hardware. This adaptability ensures that even Nvidia’s older chips remain valuable when used alongside newer technologies, further strengthening the company’s moat.

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This discussion about Nvidia’s moat is particularly relevant for investors who might be concerned that Nvidia’s dominance in AI training won’t necessarily translate into the same level of success in inferencing. Inferencing, which involves using AI models to make predictions or decisions based on new data, is a rapidly growing market. While Nvidia has a strong lead in AI training, where large datasets are used to develop AI models, there have been questions about whether the company can maintain a similar advantage in the inferencing space. Huang’s insights about Nvidia’s strategy in this area should provide reassurance to investors that the company is well-prepared to lead in both training and inferencing, thanks to its combination of hardware and software innovations.

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In conclusion, Nvidia’s strong customer relationships, strategic chip transition, and its ability to maintain a competitive edge through its software and networking innovations all point to a positive outlook for the company. Despite some concerns about the timing of its next chip release, Nvidia is well-positioned to navigate any challenges and continue delivering strong financial results. Investors should feel reassured by Nvidia’s solid market position and the confidence its leadership has demonstrated in recent weeks. As the company continues to innovate and expand its offerings in the AI space, it seems poised to remain a dominant force in the semiconductor industry.

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