Nvidia, the semiconductor giant leading the AI theme, set a new all-time high on June 27.
The company’s shares climbed over 1%, pushing its market value beyond 3.8 trillion USD.
This surge has significantly increased the likelihood of Nvidia becoming the first company to surpass the $4 trillion barrier.
To cross this threshold, Nvidia’s stock needs to rise just 6.25 USD (4%) from its June 27 closing price of 157.75 USD.
The stock has risen for the entire past week, setting new records for three straight days since June 25. While a short-term breather might be in order after such a run, Nvidia seems poised to become the first company to break the $ 4 trillion wall soon.
Upward Momentum Resumes
Nvidia faced headwinds following the start of the second Trump administration.
After reaching an all-time high of 149.43 USD on January 6, the stock took a downturn. It plummeted below 100 USD to 94.31 USD on April 4, just two days after Trump announced reciprocal tariffs.
However, Nvidia rebounded following Trump’s tariff grace period, only to stumble again when hit with additional regulations on semiconductor exports to China.
This regulation was particularly harsh, given that Nvidia’s China market share had already halved since 2021.
The Trump administration even targeted Nvidia’s H20 chip, which had been specifically designed for the Chinese market with reduced capabilities to comply with U.S. regulations.
Despite these challenges, Nvidia has managed to reignite its upward trajectory.
Ongoing trade talks between U.S. and Chinese negotiators in Geneva and London, coupled with Trump’s recent announcement of a trade agreement, have fueled Nvidia’s record-breaking run.
The June 27 closing price of 157.75 USD is a staggering 67% increase from its low of 94.31 USD on April 4.
Outlook Remains Optimistic
While Nvidia’s growth may have moderated slightly, and despite investors’ lukewarm reception to recent earnings reports, the company continues to deliver robust performance.
Crucially, Nvidia dominates the AI accelerator market, which is at the core of AI infrastructure.
Analysts estimate that Nvidia controls 95% share of this critical market.
AI accelerators, essentially the engines that power AI systems, are specialized hardware designed to boost AI performance and efficiency dramatically.
Nvidia’s data center segment, which includes these AI accelerators, has seen its revenue skyrocket, tripling over the past year.
The AI accelerator market, currently valued at 120 billion USD and dominated by Nvidia’s 95% share, is projected to double within the next five years.
If Nvidia maintains its market dominance, it could also see its related revenues double.
Furthermore, global capital expenditures on AI data centers by both businesses and governments are expected to hit 1 trillion USD within three years, doubling current levels.
Valuation Remains Attractive
Nvidia’s price-to-earnings ratio (P/E) remains favorable, which is another positive factor.
Based on next year’s projected earnings per share (EPS), Nvidia’s P/E ratio stands at 48, which may not seem low at first glance.
This is indeed above the S&P 500 average P/E of around 23.
However, given Nvidia’s extraordinary growth prospects, a P/E of 48 may not be excessive.
Wall Street analysts project Nvidia’s earnings growth to hit 44% for the fiscal year ending January 2026, followed by 34% growth for the fiscal year ending January 2027.
In light of this robust earnings trajectory, the current P/E ratio seems justified.
Moreover, Nvidia’s near-monopoly in its core markets enables it to maintain a stellar net profit margin of over 50%, indicating exceptional profitability.
Historical context also supports Nvidia’s current valuation.
The company’s P/E ratio reached 85 in 2020, 90 in 2021, and stood at 62 and 65 in 2022 and 2023, respectively, before moderating to 52 the following year.
Based on these factors, analysts anticipate Nvidia’s stock price to surpass 170 USD within a year.
On June 25, Loop Capital recently raised its price target for Nvidia from 175 USD to 250 USD, underscoring the bullish sentiment.
