On Thursday, the stocks of lesser-known AI companies experienced a surge as Nvidia, the leading artificial intelligence chip manufacturer globally, revealed their investments in these smaller firms. In a 13F filing, Nvidia said it owned shares in several small public companies, including Arm Holdings, SoundHound AI, Nano-X Imaging, Recursion Pharmaceuticals, and TuSimple. Each of the smaller companies saw its stock surge in premarket trading. The move is a sign of the market’s pent-up exuberance over the AI sector and offers clues to Nvidia’s growth strategy.
The rally showed Nvidia’s growing influence in the AI world as its market value grows scorching, passing Alphabet and Amazon to become the third most valuable U.S. company with a jaw-dropping market capitalization of $1.825 trillion. Nvidia’s booming business is due to burgeoning demand for its chips, which power artificial intelligence models in applications including machine learning and self-driving cars. The company’s chips are in such high demand that customers face shortages and wait lists to purchase them, while AI developers face months-long wait times to use the firm’s processors through cloud computing providers.
Nvidia controls about 80% of the high-end market for AI chips, and that dominance has helped it quadruple its stock price this year. The company is seeing massive growth in its GPU chips, which run complex computer graphics programs like video games. A big boost has also been seen from the demand for data centers designed to run sophisticated AI algorithms and other software.
The company is spreading its wings into the higher-octane AI market with investments in a few smaller firms. The chipmaker’s latest moves came after it announced that it was doubling the price of its flagship GeForce 2024 GPU, designed to be used by gamers and professional designers to process the large amounts of data generated by AI algorithms.
Investors reacted positively to the price increase, and analysts raised their price targets. JPMorgan Chase doubled its price target to $500 and maintained an overweight rating, while Evercore raised its price target to $530 and reiterated an outperform rating.
The rally showed that investors are so excited about the prospects for the technology industry that they’re willing to overlook concerns about the economy and interest rates. That’s a far cry from last year when the Fed was dragged kicking and screaming into raising interest rates because of concerns about inflation and a weakening economy. But the Atlanta Fed’s Raphael Bostic says the central bank isn’t ready to start easing policy. “Right now, a strong labor market and macroeconomy offer the chance to execute these policy decisions without oppressive urgency,” he says. Nonetheless, he believes the economy is still healthy enough to accelerate and push interest rates higher again in the coming months. That will allow the Fed to raise rates again later this year. That could help tamp down some irrational exuberance in the high-octane AI sector.