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Nvidia stock pops on HSBC upgrade: ‘We’re shocked by Nvidia’s pricing power on AI’

Nvidia’s (NVDA) stock popped on Tuesday after analysts at HSBC turned bullish on the chip maker, citing its position as an artificial intelligence leader.

HSBC raised its rating on the stock to Buy from Reduce while raising its price target on the stock to $355 from $175 per share. The firm’s new price target reflects roughly 30% upside from where shares were trading on Tuesday.

HSBC Head of Technology Frank Lee wrote in a note that he had concerns over Nvidia’s declining data center revenue through the last two quarters as well as its rising inventories. But he believes the pricing of A.I. chips counteracts those headwinds and changes the revenue model for Nvidia.

“In particular, we’re shocked by Nvidia’s pricing power on AI chips that we see driving earnings upside, higher valuation,” Lee wrote.

HSBC analysis shows A.I. chips will be sold at a price 10 to 20 times higher than standard gaming chips, meaning Nvidia won’t need to increase sale volume at levels previously expected. The firm sees Nvidia dominating the generative A.I. space with 90% market share in the fiscal year 2024, well ahead of the usual competitors like Advanced Micro Devices (AMD), Intel (INTC) and Micron (MU).

“While the overall [total addressable market] of generative AI still remains difficult to forecast, Nvidia has the highest potential leverage from a hardware perspective,” Lee wrote.

Since the beta launch of ChatGPT in late November, investors have rewarded companies attaching themselves to the A.I. hype train and looked down on those that appear behind the eight ball.

Microsoft (MSFT) shares are up more than 26% since rumors of a ChatGPT investment first surfaced on Jan. 10. The software giant said two weeks later it would make a multi-year, multi-billion dollar investment in OpenAI, the company behind the much discussed artificial intelligence-powered chatbot.

Alphabet (GOOGL) shares have nearly matched Microsoft’s gains to start the year but stumbled on A.I. news like a fumbled search rollout and Samsung potentially shopping for a new search engine.

Nvidia has used the Microsoft playbook, positioning itself as a front runner in the A.I.

Nvidia has used the Microsoft playbook, positioning itself as a front runner in the A.I.

The same narrative has played out in the online education sector where Chegg (CHGG) saw shares fall 44% in about five months on fears ChatGPT could steal market share coupled with weaker than expected full-year profit guidance. A new partnership with OpenAI, has boosted shares about 10% in the last week, though.

NVIDIA has used the Microsoft playbook, positioning itself as a front runner in the A.I. space in every public forum. The company mentioned A.I. more than 70 times on its last quarterly earnings call.

Shares of Nvidia have followed the A.I. hype playbook, too, skyrocketing roughly 85% this year. The increase is more than double the rise in chip competitor AMD’s stock. Meanwhile, Intel’s stock has barely beat the Nasdaq Composite.

Josh is a reporter for Yahoo Finance.

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