Nvidia's AI Investments: A Double-Edged Sword?

Nvidia's AI investments may inflate growth through circular revenue, with $13 bln expected from OpenAI in 2026. Goldman Sachs estimates OpenAI's infrastructure costs at $35 bln and raises concerns about sustainability. Despite this, Goldman Sachs maintains a Buy rating and raises its 12-month price target to $210, implying 11.9% upside. The bank views investments as strategic moves to lock developers into Nvidia's CUDA ecosystem and boost demand for its hardware.

Nvidia's stock has seen fluctuations recently, with analysts closely monitoring the company's growth in AI and PC GPU markets. Despite strong revenue growth, concerns about circular revenue have raised questions among investors. Goldman Sachs has raised its 12-month price target to $210, citing strategic investments in AI partnerships and the potential long-term benefits for Nvidia's CUDA software ecosystem.

Nvidia's investments in AI companies like OpenAI have sparked debate about the structure of these deals and the extent to which Nvidia's equity investments could be recycled into GPU purchases. Goldman Sachs estimates that OpenAI's infrastructure spending could reach $75 billion in 2026, with $13 billion expected to come from Nvidia. The bank warns that such dynamics could inflate short-term numbers and weigh on valuation multiples, but views these partnerships as strategically beneficial over the long term.

Goldman Sachs maintains a Buy rating on Nvidia, noting that the company's investments reinforce its market position and strengthen its CUDA software ecosystem. The bank expects circular deal revenue to represent less than 15% of total sales by 2027, with strong demand continuing from both traditional data center clients and new AI entrants. Despite concerns about sustainability, Goldman Sachs remains confident in Nvidia's growth prospects, highlighting a strong runway of growth from core and non-traditional customers.

In summary, while Nvidia's AI investments may inflate growth through circular revenue, the strategic benefits of these partnerships are viewed as long-term advantages for the company. Goldman Sachs' raised price target reflects its optimism about Nvidia's future performance, despite the short-term challenges posed by circular revenue concerns.