Why Nvidia Stock Jumped 34% in January
What happened
Shares of Nvidia (NASDAQ: NVDA), the chip maker best known for its graphics processors, were soaring last month as the company seemed to benefit from a broader turnaround in tech stocks and as interest built in all things artificial intelligence (AI)-related following the release of OpenAI's ChatGPT.
According to data from S&P Global Market Intelligence, the stock finished the month up 34%.
As you can see from the chart below, the stock gained steadily over the course of the month, significantly outpacing the Nasdaq, which jumped 11%.
So what
There was little company-specific news out on Nvidia last month, but after the stock plunged 50% last year, investors seemed to spy a buying opportunity as market sentiment shifted in January.
Another Consumer Price Index report showing the inflation rate continuing to come down encouraged investors that the market could rebound without a deep recession, and confidence built that the Federal Reserve would slow down its interest rate hikes. At its meeting on Feb. 1, it did just that when it raised rates by just 25 basis points, its lowest increase in nearly a year.
Nvidia shares also seemed to move higher as interest surged in artificial intelligence following the launch of OpenAI's ChatGPT in November and as Microsoft and Alphabet both declared a pivot to AI, signaling that a new tech race was on in chat-powered search and other AI categories.
AI stocks like C3.ai also jumped toward the end of the month, and Nvidia seemed to catch a tailwind because it's generally considered the leader in AI chips. A majority of its revenue also comes from chips for data centers, which are expected to be in high demand as AI becomes the next frontier in technology.
Now what
Semiconductors are a cyclical industry, and revenue is falling across the board due to an inventory glut. Recent reports from Intel and Advanced Micro Devices made clear that the fourth quarter is likely to be a challenging one for Nvidia.
Still, the company once again seems to be at the right place at the right time in the chip sector and is likely to benefit from the boom in artificial intelligence.
We'll learn more when Nvidia reports fourth-quarter earnings on Feb. 22. Analysts are expecting another decline in revenue, calling for the top line to slide 21.4% to $6.01 billion and earnings per share to shrink from $1.32 to $0.81. However, investors will also be keen to hear management's comments on the evolution of AI, as that will be a greater determinant of the company's long-term performance.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Intel, Microsoft, and Nvidia. The Motley Fool recommends C3.ai and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short January 2025 $45 puts on Intel. The Motley Fool has a disclosure policy.
