Nvidia (NASDAQ: NVDA) shares climbed sharply on Wednesday, gaining 4.6% to around $221 in early trading, after Elon Musk announced that SpaceX would build its artificial intelligence infrastructure exclusively around Nvidia's processors. The move underscores Nvidia's continued dominance in the AI chip market, even as rivals and customers explore alternatives.
During SpaceX's earnings call, Musk said the company had decided to standardize its AI infrastructure on Nvidia's latest architecture. "Going forward, we've decided to build exclusively on Nvidia because we think the Vera Rubin architecture is the best architecture," Musk told analysts. The decision is a notable win for Nvidia, as major AI infrastructure providers increasingly evaluate internally developed chips and products from competitors like AMD.
SpaceX, which also operates xAI and rents computing capacity from its data center infrastructure, expects to have approximately two gigawatts of computing capacity by the end of this year, potentially rising to as much as 10 gigawatts next year. Musk also reiterated longer-term ambitions to deploy Nvidia-powered orbital data centers, designed to overcome land and power constraints facing terrestrial facilities, though the concept remains debated among industry observers.
The gains for Nvidia were amplified by weakness in rival Advanced Micro Devices (NASDAQ: AMD), whose shares fell more than 5% in early trading despite reporting quarterly results that exceeded Wall Street expectations. Investors focused on AMD's outlook after a strong rally earlier this year, highlighting a contrast in market sentiment. According to FactSet, AMD trades at roughly 44 times forward earnings, compared with approximately 19.4 times for Nvidia, making Nvidia's valuation relatively more attractive.
Morningstar weighed in on Nvidia's valuation, stating that the stock now fits the profile of a growth-at-a-reasonable-price investment. The research firm maintained its $280 fair value estimate, implying shares trade at roughly a 30% discount. Morningstar said Nvidia remains the leading supplier of graphics processing units, software, and networking technologies that underpin the rapidly expanding AI market.
While cloud providers are expected to continue investing in proprietary chips, and competitors like AMD are expanding their AI accelerator offerings, Morningstar believes those efforts will erode only a limited portion of Nvidia's market position. The firm attributes Nvidia's competitive advantage to its graphics processing technology and the proprietary CUDA software platform, which creates high switching costs for customers developing AI applications.
Morningstar also expects continued acceleration in AI capital spending during calendar 2026 and forecasts total revenue growth of about 80% for Nvidia in fiscal 2027, supporting its long-term outlook. This positive sentiment aligns with recent market moves, as Amazon's increased AI spending and Microsoft's earnings have rekindled optimism about AI infrastructure demand.
Investors have also been watching Nvidia's valuation relative to peers, with some analysts flagging upside potential. Earlier this year, analysts noted a 40% upside on AI demand, and recent pullbacks have been seen as buying opportunities. However, geopolitical tensions and AI spending fears have occasionally triggered selloffs, as seen in recent chip sector volatility.
Overall, Nvidia's latest surge reflects a combination of a major customer commitment, relative valuation appeal, and continued confidence in the AI growth story. As the AI infrastructure buildout accelerates, Nvidia appears well-positioned to maintain its leadership, though competition and market dynamics remain key factors to watch.
This article is for informational purposes only and does not constitute financial advice.
