Nvidia shares bounce back after two rough weeks. It’s still “the best way to put AI”

Key recommendations

• Shares of Nvidia were on course to close out one of their best weeks of the year on Friday as they rebounded from a two-week slide that wiped more than 20 percent off the advanced chipmaker’s market value.

• Nvidia shares have seen turmoil in recent weeks as Wall Street’s AI enthusiasm has waned and its quarterly earnings report fell short of lofty expectations.

• Demand for AI and the Nvidia chips that enable it are expected to remain strong, according to analysts, with the vast majority still bullish on the stock despite the recent loss of momentum.

• Bernstein analysts, in a note earlier this week, reiterated that Nvidia was one of their top picks for semiconductors, calling it “the best way to play AI.”

Shares of Nvidia ( NVDA ) were on track Friday to post one of their best weeks of the year and recoup most of their losses from previous weeks as investors heeded analysts’ advice and bought the dip.

Shares of Nvidia were little changed at midday Friday, with the stock up nearly 16% for the week, the second massive rebound in a volatile month for the chipmaker’s stock.

Shares got a boost earlier this week when CEO Jensen Huang, speaking at a Goldman Sachs conference, called demand for Nvidia’s products “incredible” and touted the size of the company’s market opportunity.

“Generative AI is not just a tool. It’s a skill,” Huang told Goldman Sachs CEO David Solomon at the event. “And that’s why people think AI will expand beyond the $1 trillion of data centers and IT and into the world of skills.”

Nvidia’s comeback came after shares fell more than 20% in the past two weeks as Wall Street’s optimism about all things artificial intelligence waned and its quarterly earnings report, despite beating official estimates, fell short of expectations high of investors.

And yet the turbulence appeared to have more to do with market sentiment than the strength of the chipmaker’s business.

Reports that Nvidia’s next-generation Blackwell system was delayed by a design flaw contributed to a selloff in early August. However, as far as analysts can tell, the delays won’t have much of an impact on quarterly sales.

That’s partly because demand for Nvidia chips is so strong that customers will take whatever they can get.

Cloud hyperscalers Microsoft ( MSFT ), Amazon ( AMZN ) and Alphabet ( GOOG; GOOGL ) each said in their most recent earnings reports that they will continue to increase their spending on AI infrastructure — a substantial amount of which is going to Nvidia chips – throughout this period. year and next as it develops its AI capabilities. Tesla ( TSLA ) CEO Elon Musk estimated the electric vehicle maker will spend $3 billion to $4 billion on Nvidia chips this year, accounting for up to 40 percent of its total AI spending.

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What analysts think about Nvidia stock

The sheer force of demand is one of the big reasons why analysts still have Nvidia at the top of their buy lists, despite the stock’s recent loss of momentum. Bernstein analysts, in a note earlier this week, reiterated that Nvidia was one of their top picks for semiconductors, calling it “the best way to play AI.”

“Yes, the numbers are so good (and moving so high, so fast) that investors worry about sustainability,” the analysts wrote. “However,” with margins likely to improve next year as Blackwell’s sales grow, “clearly the time to worry is not now.”

Analysts at Bank of America Securities struck a similar note when they argued late last week that Nvidia’s stock pullback presented an “enhanced buying opportunity.”

Of the 63 Nvidia analysts tracked by FactSet Research, 50 rated the stock a “Buy,” the highest possible rating. Only four analysts have given the stock a neutral rating and none have recommended investors sell it.

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