Nvidia Stock Forecast: NVDA hits new all-time highs on Recursion deal, soft inflation

NVDA advances above $450 to a new all-time high on Thursday.
The AI tech leader has invested in biotech firm Recursion for drug discovery.
NASDAQ 100 rebalancing will cause major selling of NVDA stock.
June CPI is clearly bullish for NVDA and the general market.

Nvidia (NVDA), the mega-tech supplier of artifical intelligence hardware and software, saw its stock rise more than 3.5% on Thursday, reaching above the psychological $450 level for the first time ever. Lower-than-expected inflation data from the US further fueled the stock’s rally as it diminished chances of more aggressive tightening from the US Federal Reserve, generally a negative for the rate-sensitive stock market.

Nvidia’s gains came after the company announced a substantial investment into a biotech company called Recursion which is utilizing artificial intelligence (AI) on Nvidia’s platform for new-drug discovery. Additionally, SoftBank has courted Nvidia to become an anchor investor in the coming Arm IPO. Nvidia attempted to acquire Arm two years ago. The NASDAQ Composite has increased by 1% in the first half-hour of trading.

Nvidia stock news: Recursion investment excites, but NASDAQ 100 rebalance spells selling pressure

Nvidia announced an interesting $50 million investment in biotech firm Recursion Pharmaceuticals (RXRX) on Wednesday. The company will utilize Nvidia’s AI-primed cloud platform to train new AI models for drug discovery. Recursion has 23 petabytes of data sets involving biology and chemistry. The firm already debuted the BioNeMo platform earlier this year that uses generative AI technology to study possible drug creations.

Recursion stock soared more than 78% on the news of the investment, which was structured as a private investment in public equity (or PIPE) deal.

A negative factor for Nvidia stock is that the leadership behind the NASDAQ 100 has announced that it will rebalance its index in order to reduce its reliance on the Magnificent Seven stocks. These are Microsoft (MSFT), Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL), Tesla (TSLA), Meta Platforms (META) and, of course, Nvidia.

Due to the extreme outperformance of these stock in the first half of 2023, they now take up between 48% and 55% of the index weighting. Though details of the rebalancing will not be announced until this Friday, Wells Fargo believes these seven will be reduced to a 40% combined weighting.

Nvidia currently makes up 7.04% of the NASDAQ 100, and reducing its weighting in one of the most popular indices will mean that many passive index fund managers will need to sell off a large amount of NVDA stock in a short period of time. The new rebalancing will go into effect during the July 24 session in less than two weeks.

Curtailed inflation still positive news

The Bureau of Labor Statistics released the Consumer Price Index (CPI) for June on Wednesday morning. The fact that YoY core inflation dropped from 5.3% in May to 4.8% in June delighted growth stock investors especially, as well as the broad market. Slowing inflation means the Federal Reserve is less likely to raise interest rates in the future and might be quicker to cut rates earlier than expected.

Still, the vast majority of observers think the central bank will raise interest rates by 25 basis points at its meeting on July 26, but there is less consensus about future hikes.

“We do not have strong conviction on what the Fed is likely to do in September and beyond,” wrote economist Thomas Simons of Jefferies on Wednesday.

Nvidia FAQs

Nvidia is the leading fabless designer of graphics processing units or GPUs. These sophisticated devices allow computers to better process graphics for display interfaces by accelerating computer memory and RAM. This is especially true in the world of video games, where Nvidia graphics cards became a mainstay of the industry. Additionally, Nvidia is well-known as the creator of its CUDA API that allows developers to create software for a number of industries using its parallel computing platform. Nvidia chips are leading products in the data center, supercomputing and artificial intelligence industries. The company is also viewed as one of the inventors of the system-on-a-chip design.

Current CEO Jensen Huang founded Nvidia with Chris Malachowsky and Curtis Priem in 1993. All three founders were semiconductor engineers, who had previously worked at AMD, Sun Microsystems, IBM and Hewlett-Packard. The team set out to build more proficient GPUs than currently existed in the market and largely succeeded by late 1990s. The company was founded with $40,000 but secured $20 million in funding from Sequoia Capital venture fund early on. Nvidia went public in 1999 under the ticker NVDA. Nvidia became a leading designer of chips to the data center, PC, automotive and mobile markets through its close relationship with Taiwan Semiconductor.

In 2022, Nvidia released its ninth-generation data center GPU called the H100. This GPU is specifically designed with the needs of artificial intelligence applications in mind. For instance, OpenAI’s ChatGPT and GPT-4 large language models (LLMs) rely on the H100’s high efficiency in parallel processing to execute a high number of commands quickly. The chip is said to speed up networks by six times Nvidia’s previous A100 chip and is based on the new Hopper architecture. The H100 chip contains 80 billion transistors. Nvidia’s market cap reached $1 trillion in May 2023 largely on the promise of its H100 chip becoming the “picks and shovels” of the coming AI revolution.

Long-time CEO Jense Huang has a cult following in Silicon Valley and on Wall Street due to his strict loyalty and determination to build Nvidia into one of the world’s leading companies. Nvidia neary fell apart on several occasions, but each time Huang bet everything on a new technology that turned out to be the ticket to the company’s success. Huang is seen as a visionary in Silicon Valley, and his company is at the forefront of most major breakthroughs in computer processing. Huang is known for his enthusiastic keynote addresses at annual Nvidia GTC conferences, as well as his love of black leather jackets and Denny’s, the fast food chain where the company was founded.

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