XIACY - Nvidia pulls back from record high following 31% rally; chips dip

2023-05-31 15:18:35 ET

Nvidia stock ( NASDAQ: NVDA ) is finally pulling back from a record high with its biggest drop in months -- albeit after three sessions of gains that had added up to a 31% increase from last Wednesday.

Shares were down 4.7% in the last hour of trading, and they joined a semiconductor sector that was broadly lower outside of Intel ( INTC ), up 6.5% after giving an upbeat take on second-quarter revenues .

Intel is the outlier, though. Joining Nvidia and sharply lower on the day among chip stocks were Taiwan Semiconductor Manufacturing ( TSM ), -3.8% ; AMD ( AMD ), -4.8% ; Micron ( MU ), -4.5% ; Qualcomm ( QCOM ), -2.4% ; Texas Instruments ( TXN ), -1.8% ; Marvell ( MRVL ), -7.1% ; and NXP Semiconductors ( NXPI ), -1.8% .

BofA reiterated its Buy rating and top-pick status for Nvidia after the weekend Computex keynote in Taiwan, saying that key product announcements have bolstered the company's early-mover advantage and strong execution in artificial intelligence.

"AI networking could be a $10.7B total addressable market by CY27E vs. just $2B last year," analyst Vivek Arya said, citing forecasts from 650 Group. In generative AI's early days, the preferred protocol was Infiniband, while over time, Ethernet could become more ubiquitous.

"With the acquisition of Mellanox in 2020 ($7B), NVDA holds both Infiniband and Ethernet assets to support connectivity in high performance compute applications," Arya points out.

And while AI upside is driving strong performance so far, "we believe we are only at the start of the story," Arya said, pointing to long-term EPS power of $20, "which could be conservative with growing data center portfolio driving margin expansion." He's raised his Nvidia price target to $500, implying 31% further upside.

Meanwhile, Nvidia CEO Jensen Huang is following up the Taiwan trade-show beat with his first trip to China in years. In the coming month he'll plan to visit Tencent Holdings ( OTCPK:TCEHY ) and TikTok owner ByteDance ( BDNCE ), according to Bloomberg.

That trip will happen despite last year's U.S. sanctions that prevent the company from selling its most advanced AI chipsets to those Chinese customers. Nvidia gets about a fifth of its revenue from China and quickly retooled its product line after the sanctions.

Huang also plans to visit EV makers Li Auto ( LI ) and BYD Auto, as well as smartphone-to-EV transition story Xiaomi ( OTCPK:XIACY ), according to Bloomberg.

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