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Author: Li Xiaoyin

Source: Hard AI

The uncertainty of the US economic outlook is testing investors' confidence in technology stocks. As the leader in AI, can Nvidia continue to renew its "belief in AI"?

On August 18, Goldman Sachs analysts Toshiya Hari, Anmol Makkar and others released a latest research report saying that benefiting from strong demand from large cloud service providers and corporate customers, Nvidia will continue to maintain its strong position in AI and accelerated computing, and continue to maintain its "buy" rating.

The report pointed out that although the delay in shipment of the Blackwell series GPUs has caused fluctuations in the fundamentals, based on official statements and supply chain-related data, Nvidia is still confident in its profitability.Its earnings per share are expected to reach $4.16 in 2025, 11% higher than the market consensus.

In terms of stock price outlook, Goldman Sachs set a 12-month target price of $135 for Nvidia, which still has 8.4% upside from last Friday's closing price.

The demand for AI remains strong, and its leading advantages are significant

The report stated that the reason why it continues to be optimistic about Nvidia's growth prospects is thatThis is mainly because the demand for AI infrastructure such as GPUs will remain strong.

As an upstream supplier of the supply chain, TSMC provides foundry services to chip companies such as Nvidia, Qualcomm, and AMD. Taking TSMC as an example, the report points out thatTSMC's HPC (high-performance computing) business accounted for more than half of its total revenue for the first time, indicating strong demand for AI.

In the post-earnings conference call, TSMC Chairman and President Wei Zhejia also said that the tight supply of CoWoS production capacity is expected to continue until 2025, and the CoWoS production capacity this year and next year will at least double, which also shows a strong demand outlook.

Secondly, Nvidia will also benefit from its large customer base. The report stated that Nvidia has established a large and growing adoption base with significant competitive advantages. As GPUs accelerate iteration, Nvidia is expected to continue to maintain and benefit from its dominant position in the field.

On August 28, NVIDIA will release its Q2 performance report for fiscal year 2025.Goldman Sachs believes that the Q2 financial report will show that demand for Nvidia's H100 GPU will remain strong and that H200 will begin mass shipments.

Goldman Sachs expects Nvidia's Q2 revenue and earnings per share to exceed expectations, thanks to data center revenue growth and strong operating leverage.They reached US$29.769 billion and US$0.68 respectively, 4.1% and 5.9% higher than market expectations.

Among them, H100, H200 and Spectrum-X will become the key drivers of revenue growth in Q2, and the step-by-step increase in TSMC's CoWoS production capacity may also support revenue growth from the supply side.

In terms of the data center department, Goldman Sachs expects that by Q3, the department's revenue will further grow, achieving a 15% month-on-month increase; by 2026, data center revenue will achieve double-digit year-on-year growth.

Return on investment is beginning to emerge, and ROI may be announced to boost confidence

Currently, the market's main concern is whether the huge capital expenditure of AI projects can generate commercial returns.

The report shows that global cloud capital expenditure is expected to increase by 60% and 12% year-on-year in 2024 and 2025, respectively, which is an increase from the previous expectations of 48% and 9%.

In addition, due to concerns about delayed delivery of the Blackwell series of chips and the sustainability of data center revenue growth, Nvidia's valuation has declined recently, with a price-to-earnings ratio of 42 times, which is 1% lower than the median level of the past three years and is at a historically low level.

However, the report also added that some clients have provided some preliminary data showing that generative AI has achieved some returns in the advertising industry. Goldman Sachs expects that in the Q2 earnings conference call,Nvidia will publish ROI metrics for specific customers (ROI) to boost market confidence.