In a rare event, Nvidia (NASDAQ: NVDA) shares plummeted nearly 7% during Wednesday’s trading session. This sharp decline was primarily driven by heightened concerns over potential additional regulatory measures from the White House aimed at China’s chipmaking industry. Adding to the uncertainty, former President Donald Trump suggested that Taiwan should pay the U.S. for protection, further complicating relations with the world’s largest chip exporter.
Despite this sudden drop, Toshiya Hari, a top-rated 5-star analyst from Goldman Sachs, remains optimistic about Nvidia’s future. After hosting a group meeting with Nvidia’s Chief Financial Officer, Colette Kress, Hari reaffirmed his positive outlook on the company’s market position and growth prospects. He emphasized the sustainability of the ongoing Generative AI (Gen AI) spending cycle and Nvidia’s ability to maintain its leadership through consistent and rapid innovation in Compute, Networking, and Software.
A significant highlight from the meeting was the upcoming launch of the Blackwell GPU platform. Kress noted that key suppliers are better prepared for this generational transition compared to previous ones. While the Blackwell products are expected to generate limited revenue in the fiscal third quarter (October), significant growth is anticipated in the fiscal fourth quarter (January) and the fiscal first quarter (April). This growth will be driven primarily by the GB200 NVL36 and NVL72 configurations, which feature advanced rack-scale designs with multiple Grace CPUs and Blackwell GPUs.
Given the substantial increase in hyperscale capital expenditure (capex) over the past year and a half, and the strong near-term outlook, there is ongoing concern among investors about the longevity of the current capex trend. Hari acknowledges the early stage of Gen AI and the uncertainty regarding its adoption rate. However, he finds reassurance in a recent analysis by his colleagues. This analysis compares the ongoing Gen AI cycle to previous Compute build cycles, noting that Microsoft’s current capex efficiency is similar to that of years 4-5 in the Cloud Computing cycle. Additionally, Azure AI revenue after five quarters is surpassing the trajectory Azure had six years post-launch.
Hari believes that although Nvidia will eventually face a cyclical correction, the current Gen AI cycle offers promising prospects. To this end, he maintains a Buy rating for Nvidia shares, backed by a $135 price target, suggesting a potential 15% upside over the next year. The Street’s average price target is slightly higher at $140.85, indicating a projected gain of 19% over the 12-month period. Overall, with 37 Buys and 4 Holds, NVDA stock holds a Strong Buy consensus rating.
The broader context of Nvidia’s situation highlights the company’s ongoing efforts to stay ahead in the highly competitive tech industry. Despite geopolitical tensions and regulatory uncertainties, Nvidia continues to innovate and expand its product offerings. The launch of the Blackwell GPU platform is a testament to the company’s commitment to maintaining its technological edge.
Furthermore, the substantial capex investments by hyperscale cloud providers reflect the growing demand for AI and cloud computing capabilities. Companies like Microsoft, Alphabet, Amazon, and Meta are significantly increasing their capex budgets to support data-center capacity and AI infrastructure. This trend underscores the strategic importance of AI in shaping the future of technology and business operations.
While the market for AI offerings is becoming more competitive, leading to potential pricing pressures and margin squeezes, the long-term prospects for AI-driven growth remain strong. As AI applications continue to evolve and integrate into various industries, the demand for advanced computing and data-processing capabilities is expected to rise, providing opportunities for companies like Nvidia to capitalize on their technological advancements.
For investors seeking stocks trading at attractive valuations, tools like TipRanks’ Best Stocks to Buy can provide valuable insights. However, it is crucial to conduct thorough personal analysis before making any investment decisions. The opinions expressed by analysts, including those featured in this article, should be considered as part of a broader investment strategy that takes into account individual financial goals and risk tolerance.
In conclusion, Goldman Sachs’ analysis highlights Nvidia’s strong market position, ongoing innovation, and promising future prospects, which, despite a significant decline in the company’s share price due to geopolitical concerns and possible regulatory actions, point to a resilient outlook for the tech giant. As the demand for AI and advanced computing continues to grow, Nvidia is well-positioned to leverage its technological leadership and drive future growth, despite the challenges posed by the evolving geopolitical landscape.