Goldman: Nvidia (NVDA.US) earnings will silence AI critics
After meeting Nvidia’s (NVDA.US) CFO Colette Kress, Goldman reiterated its “buy” rating on the stock and set a target price of $135.
Goldman said Nvidia plans to emphasize the profits its end customers are getting from using its AI GPU chips more and more.
Investors are increasingly worried that despite spending billions of dollars on Nvidia’s AI chips, the chips are bringing little profit and revenue to Nvidia’s customers.
Bank of America said earlier this week in a report that “end users and their investors will soon be looking for revenue to justify the $500bn spent so far,” “no one is denying compute but after the latest round of frothiness around the latest chip, investors may be starting to question the recent economic conditions.”
Goldman said: “To help investors understand the ROI profile of their customers, Kress indicated that they plan to provide customer ROI metrics on their next earnings call, similar to the way they shared the Meta data metrics on their last earnings call, to help investors build confidence.”
Nvidia said it expects to make $7 in revenue from Llama3 tokens over the next four years for every dollar spent on Nvidia’s HGX H200 servers.
Goldman’s meeting with Kress included expected revenue growth from Nvidia’s next-generation Blackwell GPU chip.
Goldman expects revenue from Blackwell to be limited in the third quarter, “then grow more in the fourth quarter (January) and first quarter (April).”
Goldman said: “Kress also indicated that in the foreseeable future, data center infrastructure space, power and cooling etc. inputs — which are often questions investors ask because they relate to customers’ ability to build large data centers — are unlikely to derail the company’s growth trajectory.”
In general, Goldman said it has confidence Nvidia will deliver positive earnings surprises, driving an upward revision to earnings per share when it reports next month.
Goldman said: “The meeting reinforced our belief in the sustainability of the current AI spending cycle and Nvidia’s ability to maintain its leadership position through continued rapid innovation in compute, networking and software.”