Goldman Sachs: Nvidia’s Target Raised on AI Compute Demand Growth
AInvestFriday, Oct 11, 2024 8:42 am ET
3min read
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Goldman Sachs has raised its 12-month price target for Nvidia (NVDA) to $150 from a previous target of $135, reflecting the company’s strong position in the rapidly expanding artificial intelligence (AI) and computing sectors.

Following investor meetings with Nvidia's senior management, including CEO Jensen Huang, CFO Colette Kress, and Investor Relations representative Stewart Stecker, Goldman Sachs' analyst Toshiya Hari highlighted Nvidia’s robust competitive moat and the increasing complexity in AI inference workloads as key factors driving the stock's potential upside.

This article will break down the factors behind Goldman Sachs' increased price target, Nvidia's market positioning, and the implications for investors.

The Case for Raising Nvidia’s Price Target

The decision to raise Nvidia's target price by 11 percent to $150 follows a series of insights gathered from the investor meetings. Goldman Sachs came away with an improved understanding of Nvidia’s competitive advantages, which include:

1. Increased AI Compute Demand: Nvidia is benefiting from the growing complexity of AI inference workloads, which refers to the process where machine learning models are used to make predictions or decisions based on new data. As these workloads become more computationally intensive, Nvidia’s advanced chips and software platforms are increasingly in demand, particularly for large-scale AI applications.

2. Industry Momentum: The broader trends in AI-related industries are also playing a significant role in Goldman’s more optimistic outlook. Specifically, the report highlighted higher capital expenditures by major cloud providers, increased order trends at leading AI server original equipment manufacturers (OEMs), and an improved outlook for CoWoS (Chip on Wafer on Substrate) technology at Taiwan Semiconductor Manufacturing Company (TSMC), which is a crucial partner in Nvidia's production process.

These trends signal that Nvidia is well-positioned to continue its growth trajectory, as major players in AI infrastructure invest heavily in the hardware necessary to support these computationally intensive systems.

Upgraded Financial Projections for Nvidia

In line with these industry developments, Goldman Sachs has revised its revenue and earnings projections for Nvidia’s fiscal years 2026 and 2027. The updated estimates reflect a 7 percent increase in expected revenue and an 8 percent increase in non-GAAP earnings per share (EPS), excluding stock-based compensation. These revisions stem from the company's continued strong performance and the optimistic outlook on its AI and cloud computing segments.

Goldman’s updated EPS estimate for Nvidia’s FY2026 now sits at $4.63 per share, which is 14 percent above the consensus estimate from FactSet, underscoring Nvidia's potential to outperform market expectations. This upward revision in earnings also strengthens the rationale for the increased price target.

Nvidia’s Competitive Moat and Market Position

A key driver behind Nvidia’s success is its "competitive moat" in the AI and semiconductor space. The company has established itself as a dominant force in providing the GPUs (graphics processing units) that power AI workloads. Nvidia's GPUs are favored in both training and inference applications of machine learning, which are essential for deep learning and AI-driven systems used by tech giants and research institutions globally.

Nvidia’s dominance in this space is reinforced by its ongoing innovation in AI software, such as its CUDA programming model, which is widely adopted for machine learning. The combination of hardware and software solutions makes Nvidia indispensable in the AI ecosystem, creating high barriers to entry for competitors.

Moreover, Nvidia’s partnerships with major cloud providers and OEMs further solidify its position. As demand for AI infrastructure grows, Nvidia is set to capture a significant share of the market, particularly as cloud service providers ramp up their investments in AI capabilities.

Market Implications and Investor Takeaways

Goldman Sachs’ decision to reiterate its "Buy" rating and include Nvidia on its Americas Conviction List signals strong confidence in the company’s ability to capitalize on the increasing demand for AI compute power. With Nvidia’s stock price already performing well this year, the updated price target offers an additional 11 percent upside potential, making it an attractive opportunity for growth-oriented investors.

However, investors should also be mindful of the risks inherent in the semiconductor industry. While Nvidia’s outlook remains positive, the sector is cyclical and heavily influenced by global supply chains and demand fluctuations. Any disruptions in supply, changes in global economic conditions, or shifts in AI adoption rates could impact Nvidia’s stock performance.

Conclusion

Nvidia’s elevated price target to $150 by Goldman Sachs reflects the company’s strengthened position in the AI and computing sectors, driven by rising demand for high-performance computing infrastructure and its robust competitive advantages.

With upgraded financial forecasts for FY2026 and 2027 and its leadership in AI workloads, Nvidia continues to be a compelling investment opportunity for those looking to gain exposure to the burgeoning AI space.

As AI technology grows more integral to industries worldwide, Nvidia's role as a key enabler of this technological shift positions it for sustained growth in the coming years. Investors should consider the potential upside, balanced against sector risks, as they evaluate Nvidia within their broader portfolio strategies.

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