Goldman Sachs: Nvidia's Earnings Report Is Worth Anticipating and Will Silence AI Critics

The market is increasingly worried that despite spending hundreds of billions of dollars on Nvidia's AI chips, the profits and revenues for Nvidia's clients have been minimal.

After meeting with Nvidia's CFO, Colette Kress, Goldman Sachs reiterated its Buy rating on the company and set a target price of $135. Goldman Sachs noted that Nvidia plans to emphasize the profits its end users are gaining from the increasing use of its AI-enabled GPU chips.

The market is increasingly concerned that despite the massive expenditure on Nvidia's AI chips, the returns for its clients have been limited. Earlier this week, Bank of America stated in a report, End-user companies and their investors will soon seek revenues to justify the $500 billion already spent. No one doubts the computational power. But after the latest frenzy around the newest chips, investors might begin to question the current economic conditions.

Goldman Sachs stated: To help investors understand the ROI profiles of its clients, Kress pointed out that, similar to how they shared Meta's data in the last earnings call, they plan to provide ROI metrics for their clients in the next earnings call to instill confidence in investors.

In the last earnings call, Nvidia stated that for every dollar spent on Nvidia's HGX H200 servers by API providers hosting the Llama 3 model, they could earn approximately $7 in revenue from Llama 3's token billing over the next four years.

Goldman's conversation with Kress also included the expected revenue growth from Nvidia's next-generation Blackwell GPU chips. Goldman expects revenue from Blackwell chips to be limited in the third fiscal quarter, followed by greater growth in the fourth fiscal quarter (January) and the first fiscal quarter (April).

Goldman stated: Kress also mentioned that for the foreseeable future, inputs such as data center facility space, power, and cooling—which are often raised by investors as these relate to the customers' ability to build large-scale data centers—are unlikely to disrupt the company's growth trajectory.

Overall, Goldman expressed confidence that Nvidia will deliver positive earnings surprises, boosting earnings per share estimates positively when it reports results next month.

Goldman stated: The meeting reinforced our belief in the sustainability of the ongoing next-generation AI spending cycle and Nvidia's ability to maintain its leadership position through continued rapid innovation in computing, networking, and software.