Nvidia made headlines around the world last week after it overtook Microsoft to become the most valuable company in the world. At the end of trading on Tuesday, June 18, Nvidia shares were valued at $136 per share, which sent its market cap up to an enormous $3.34 trillion. Since the beginning of this year, the chipmaker’s share price has jumped 170 percent, continuing a long-running boom that would appear to have vindicated the AI optimists.

Nvidia has since been knocked off the top spot, as is all but inevitable as the world’s biggest firms jostle for position and their values ebb and flow. By Thursday, Nvidia shares fell to $130.78, allowing Microsoft to reclaim its crown – after being briefly dethroned – as the world’s most valuable company. But the strong showing by Nvidia is convincing evidence that it has a permanent seat at the top table. In a note to investors, Wedbush Securities said the story of the stock market over the coming year would be defined by the race to reach a $4 trillion market cap. The contenders, they said, would be Nvidia, Apple and Microsoft.

Nvidia appears to be the golden goose that will not stop laying. But some observers who are less optimistic about the future of AI, are wondering if or when the music might stop. While most investors remain positive about Nvidia’s prospects, others warn that the firm’s meteoric rise could result in a display of the old adage, ‘the bigger they are, the harder they fall.’

Could Nvidia shares crash?

While most analysts maintain a positive view about Nvidia’s long-term prospects, as it is leading the charge in the lucrative AI sector, it can be useful to take the time to cut through the noise and pick up quieter voices to understand the various perspectives and identify potential pitfalls.

As Reuters reports, many Nvidia investors have seen the values of their portfolios soar, but some are now questioning whether they ought to cash in or hold out. The outlet highlighted D.A. Davidson’s Gil Luria as one Nvidia pessimist – who has assigned the stock a $90 per share price target, which, if born out, could mean significant losses for those buying today (June 21). The analyst said it was a long-term projection on the basis the company’s current performance would be hard to maintain.

Others warn of a threat to Nvidia as big tech companies accelerate the development of proprietary AI technologies, putting the squeeze on the market leader. Morningstar analysts hold a gloomy $105 per share target on Nvidia stock, with analyst Brian Colello warning this month:

“Any semblance of the successful development of alternatives could meaningfully limit Nvidia’s upside.”

Writing for the Motley Fool, private investor and observer Alan Oscroft said he felt there was a “good chance of a Nvidia share price crash” – although he caveated the gloomy forecast by adding: “I also see a good chance it will be way ahead of where it is today, in another couple of decades.” In other words, Oscroft, as with many other observers, feels the trajectory of AI is too unpredictable.

Is Nvidia still a buy in 2024?

Although it can be useful to consider minority voices, it is important to remember the overwhelming consensus on Nvidia remains positive. June data from TipRanks showed Nvidia held ninety-five buy ratings, five hold ratings, and no sell ratings. MarketWatch data showed 46 buy ratings, against eight overweight ratings and six hold ratings – with no sell ratings on the stock as of Friday, June 21

While some analysts expect a ‘dip,’ which has at least in part been born out in recent days when Microsoft reemerged as the world’s most valuable company, the long-term outlook on Nvidia remains bullish. In a recent note, Vivek Arya of BofA said: “Nvidia’s stock’s steep climb…could make it vulnerable to near-term profit-taking. However, any volatility could be short-lived,” Barron’s reports, noting that BofA retains a $150 price target on the stock.

Separately, those comparing Nvidia’s meteoric rise – and the rise of AI more generally – with the dotcom bubble, were branded as’ fearmongers’ by George Budwell for the Motley Fool. Writing for the outlet, he said:

“While Nvidia’s stock may appear expensive and overvalued based on traditional metrics, it’s essential to consider its central position in the AI revolution. With automation and an abundance of intelligence on track to redraw the global economy within a few short years, Nvidia’s bull run is likely just getting started.

As such, the fearmongering over another dot-com-type bubble seems wholly unwarranted. It also grossly underestimates the transformative potential of this technology that many think will be the most important invention in the history of humanity.”

The ‘bubble’ camp has also been dismissed by Bank of America, which described the AI bull run as the result of a ‘mission-critical race’ as opposed to the ‘risky debt-taking’ which defined the dot-com bubble. As per analysis cited by CNBC, while Nvidia stock might be vulnerable to ‘short-term profit taking’, which has the potential to extend its current dip, all indications are that the stock will bounce back to reach new heights.

How did Nvidia become the world’s most valuable company?

Nvidia, a company specialising in computer chips, surged to become the world’s most valuable public company. Founded in 1993 by Jensen Huang and two friends at a Denny’s restaurant in California, Nvidia initially focused on enhancing PC graphics for video games.

The company’s breakthrough came with the development of the GeForce graphics card, which revolutionised electronic entertainment by significantly boosting PC performance. Early success in the gaming industry, notably through partnerships with franchises like Quake and becoming the exclusive graphics provider for Microsoft’s first Xbox, cemented Nvidia’s reputation.

However, Nvidia’s ascent wasn’t solely due to gaming. By the mid-2000s, engineers recognised that the company’s graphics processing units (GPUs) could perform complex calculations more efficiently than traditional central processing units (CPUs). This realisation led Nvidia to expand its market beyond gaming, focusing on sectors requiring advanced computing capabilities.

A pivotal moment was Nvidia’s investment in artificial intelligence (AI) during the 2010s. Recognising the potential of AI, Nvidia developed machine-learning features within its products, positioning itself at the forefront of this technological revolution. This strategic pivot attracted major tech firms, including Tesla, which integrated Nvidia’s hardware into its vehicles’ driver-assistance systems. Nvidia founder Jensen Huang is sometimes credited as the ‘godfather’ of AI.

The COVID-19 pandemic further accelerated Nvidia’s rise as companies increasingly turned to AI solutions. Nvidia’s technology became integral to systems like ChatGPT, sparking widespread adoption. As AI demand surged, Nvidia’s market value soared, reaching over $3.3 trillion.

Despite challenges, including a failed foray into the smartphone market, Nvidia’s early and sustained bet on AI, combined with its GPU innovations, propelled it to the top. Today, Nvidia’s chips power AI systems for major Silicon Valley players, securing its position as a dominant force in tech.

The outlook remains rosy for Nvidia shares

Nvidia’s remarkable rise is a result of its strategic foresight and innovation in the AI sector. While Nvidia might have dropped out of the poll position as the world’s most valuable company—which is always a moving picture—Nvidia’s strong foundation in GPU technology and its early, aggressive investment in AI see it well positioned for the future. Analyst consensus is that Nvidia has a promising outlook, with many projecting continued growth fuelled by the continued growth of AI.

However, potential pitfalls remain. Some experts caution against overvaluation, likening the current AI boom to the dot-com bubble. Concerns about competition from other tech giants muscling in on the AI market also pose a risk. Despite these warnings, most analysts remain optimistic, driven by Nvidia’s seemingly immovable position as the king of the AI sector.

While some short-term volatility is expected, the long-term prospects appear robust. As AI continues to reshape various industries, Nvidia’s pioneering role suggests it has a strong potential for sustained success, which could make it a compelling consideration for investors looking for a solid long-term investment. The company’s trajectory, marked by consistent innovation and market adaptability, indicates that Nvidia’s journey is far from over, with many more milestones yet to come.