Nvidia Corp.’s stock made it to the conviction list of one Wall Street firm on Monday, while an analyst at another forecast that the chip maker could drop its next-generation architecture early.
The stock led gainers on the PHLX Semiconductor index
SOX,
which rose 0.4% on Monday. Meanwhile, the S&P 500 index
SPX
was virtually flat, and the Nasdaq Composite Index
COMP
finished up 0.7%.
Goldman added Nvidia to its conviction list, referring to the company as the main “shovel supplier” in the AI “gold rush,” a position the company has cultivated over the years. Goldman said the rest of Wall Street is underestimating the potential gross-margin uplift from an improving mix — that is, faster growth in data center, as well as operating-expense leverage inherent in Nvidia’s GPU platform-based business model.
From the archives (November 2021): Nvidia seeks to lead gold rush into the metaverse with new AI tools
Recently, Nvidia’s data-center sales topped Wall Street expectations by more than $2 billion, while the company’s revenue forecast for the third quarter was more than $3 billion higher than expected. The company also reported adjusted gross margins of 71.2% — compared with 45.9% a year earlier — and forecast margins of 71% to 73% for the current quarter.
In comparison, Advanced Micro Devices Inc.
AMD,
widely expected to be the second-best-positioned to capture AI chip sales, forecasts margins of about 51% for the current quarter, while Intel Corp.
INTC,
expects about 43%. In the October-ending quarter last year, AMD reported adjusted third-quarter margins of 50%, and Intel reported 45.9%.
In mid-September, Intel announced the rollout of its AI chips, while AMD rolled theirs out over the summer and appealed to open-source users. The most recent earnings report from Nvidia was epic in proportion, as the AI products that the GPU maker launched in March began showing up in results, fueling a more-than $2 billion data-center sales beat, and a third-quarter revenue forecast that topped expectations at the time by more than $3 billion.
AMD is expecting a full rollout of its AI chips following a fourth-quarter ramp-up,
Improved margins, Goldman’s Toshiya Hari noted, should further drive buybacks from the company’s recently announced $25 billion authorization. With Nvidia’s third-quarter earnings report expected in November, Hari said investors should watch for industry commentary that supports the sustainability of AI spending from cloud data-center operators like Amazon.com Inc.
AMZN,
Microsoft Corp.
MSFT,
and Alphabet Inc.’s
GOOG,
GOOGL,
Google. Hari has Nvidia at a buy rating with a $605 price target.
On its October conviction list, Goldman also added Okta Inc.
OKTA,
and Quanterix Inc.
QTRX,
while removing Salesforce Inc.
CRM,
and Johnson Controls Inc.
JCI,
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Late Friday, Citi Research analyst Atif Malik, who has a buy rating and a $630 price target on Nvidia, said AI spending could even prompt Nvidia to release its next-generation chip architecture early.
Nvidia’s next-gen architecture is reportedly code-named “Blackwell,” after mathematician David Blackwell, in the company’s tradition of naming architectures after computing pioneers, and would power the company’s B100 AI GPU. Recently, Nvidia unveiled the schedule for its GTC conference in March.
Typically, Nvidia launches its next-gen AI GPU every two years, in the second half of the year.
“Per our estimations, B100 GPU could be an even bigger AI game-changer than H100 at its launch, from a technology standpoint, and set for a rapid adoption which subsequently will drive up Nvidia’s ASPs, sales and margins,” Malik said.
A little over a year ago, Nvidia launched its Ada Lovelace–architecture chips.
“[As] demand for its AI GPUs continues to ramp and competitors’ next-gen products start trickling in, Nvidia may launch its B100 GPU earlier, potentially in [the first half of calendar 2024],” Malik said.
To date in 2023, Nvidia shares have soared 206%, while the S&P 500 index
SPX,
has gained 11.7%, and the tech-heavy Nasdaq Composite
COMP
has risen 27.2%. Additionally, AMD shares are up 59.4% year to date, Intel stock is up 34.2%, and the SOX chip index has advanced 36.2%.
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