Buy Nvidia Stock Because It Will Lead the AI Arms Race, Says Analyst

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BofA Global Research is optimistic that Nvidia’s leadership in semiconductors for artificial-intelligence applications will boost its sales in the coming years.

On Monday, analyst Vivek Arya reiterated his Buy rating for

Nvidia

stock (ticker:

NVDA

) and raised his forecast for the chip maker’s stock price to $255 from $215.

Nvidia’s “full-stack of accelerated silicon/systems/software/developers positions it uniquely to lead the nascent generative AI arms-race among global cloud and enterprise customers,” he wrote.

Nvidia shares are up by 2.7% to $223.80 late on Tuesday morning.

Last week, both

Alphabet

‘s (GOOGL) Google and

Microsoft

(MSFT) unveiled AI-powered conversational chat bot companions for their search engines. A wave of interest in new AI products has been sparked by OpenAI’s release of ChatGPT late last year.

The analyst estimates the adoption of generative AI services like ChatGPT could grow Nvidia’s revenue by 25% annually through 2027. He said large-language models used by ChatGPT and other services require much more computing power, boosting demand for chip makers such as Nvidia.

However, Arya warned that in the short term Nvidia stock may be volatile if it provides a financial outlook for its data-center business that disappoints Wall Street.

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“We expect any pullback to be short-lived,” he wrote, as investors will look towards Nvidia’s annual developer conference in late March, according to the analyst.

Last week, Barron’s cautioned ChatGPT’s capabilities should not be overestimated as the chatbot often generates inaccurate responses. According to experts, the way the pattern-recognition and internet-scraping technology works means it lacks real understanding of concepts, and cannot generate original, creative insights.

Write to Tae Kim at [email protected]