Nvidia stock rises as HSBC upgrades on shocking pricing power in AI
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Nvidia (NASDAQ:NVDA) shares rose more than 2% in premarket trading on Tuesday as investment firm HSBC upgraded the semiconductor giant, citing the company's opportunity in artificial intelligence.
Analyst Frank Lee raised his rating on Nvidia (NVDA) shares to buy from reduce and boosted his per-share price target to $355 from $175, noting that the company's pricing power in AI chips is likely to boost earnings considerably higher.
"We were too focused on the slowdown in data centers, but what really surprised us was its pricing power on AI chips," Lee wrote in an investor note, adding that even though the stock has gained 90% this year, there is still more room to run. 
AMD (AMD), which competes with Nvidia (NVDA) in the data center and GPU space, rose
more than 1% in premarket trading in sympathy.
While some companies in the AI supply chain, such as Taiwan Semiconductor (TSM), may only see a small bump from the technology, Lee said, Nvidia (NVDA) is seeing a "significant boost" in pricing. Its A100 chips cost $10,000 and its H100 chips are priced at $20,000, between 10 and 20 times higher than the average gaming GPU.
"Hence, Nvidia does not need to see too much growth in AI GPU volumes to match our expected revenue growth, given the big ASP uplift," Lee added.
As such, Lee raised his fiscal 2024 and 2025 sales and earnings per share estimates to $33.37B and $43.14B and $5.11 and $7.10, respectively. 
With the rise of certain AI initiatives around the world, including the rise of ChatGPT and Microsoft (MSFT) incorporating the technology into its products, Lee added that AI GPUs could boost sales the next two years by $5.2B and $11.1B, respectively. 
On Monday, Citi noted that sentiment is a "mixed bag" for the semiconductor industry as a whole, but Nvidia (NVDA) is among those seeing positive sentiment from investors. 
Analysts are largely bullish on Nvidia (NVDA). It has a HOLD rating from Seeking Alpha authors, while Wall Street analysts rate it a BUY. Conversely, Seeking Alpha's quant system, which consistently beats the market, rates NVDA a HOLD.