Investing.com -- Nvidia (NASDAQ:NVDA) stock is “set up well to sustain its outperformance,” according to Goldman Sachs analysts, noting that demand for AI-driven compute solutions shows little sign of abating.
With Nvidia included in Goldman’s Americas Conviction List, the bank reiterates a Buy rating on the stock ahead of the company’s fiscal Q3 earnings on November 20.
Analysts emphasize that Nvidia’s current trading level, while high, is still “well below its past 3-year median price-to-earnings (P/E) multiple” when compared with other stocks within Goldman’s coverage, suggesting room for further gains.
Goldman’s bullishness primarily hinges on Nvidia’s unique position in the AI infrastructure space.
The bank anticipates that Nvidia’s fiscal Q1 in April will be a “breakout” quarter, chiefly driven by the rollout of Blackwell GPUs and easing supply-side constraints. The anticipated combination of new product offerings and strengthened supply is expected to drive “meaningful positive EPS revisions.”
However, analysts also expect Nvidia’s Q3 results and Q4 guidance to validate the firm’s long-term growth thesis.
They highlight that Nvidia’s biggest clients—Alphabet Inc Class A (NASDAQ:GOOGL), Meta (NASDAQ:META), Microsoft (NASDAQ:MSFT), and Amazon.com Inc (NASDAQ:AMZN)—reported earnings reflecting consistent demand for cloud and AI infrastructure.
Despite slight variations in cloud growth rates among these players, all indicated that supply constraints, not demand, remain a limiting factor. Microsoft specifically forecasted a re-acceleration in Azure revenue growth as more capacity is added.
Nvidia’s robust ecosystem of partnerships also points to robust demand. SK Hynix Inc (KS:000660), a key Nvidia partner, saw its HBM revenue increase by over 70% quarter-over-quarter, indicating strong demand for high-performance memory critical to Nvidia’s GPUs.
“Looking ahead, SK Hynix spoke to good demand visibility supported by long-term contracts with customers and the fact that their HBM capacity is sold out through the end of CY2025,” analysts led by Toshiya Hari added.
They also address some concerns over AI spending sustainability, noting that while Nvidia may face a cyclical correction as companies optimize AI capacity, this isn’t expected in the immediate future, "particularly given the recent increase in the breadth of AI use cases."
Recent developments in diverse AI applications—from Google’s engineering efficiencies to Amazon’s cost savings with generative AI assistants—are likely to drive sustained investment, reducing the likelihood of a significant short-term slowdown.
Capital expenditure (capex) estimates from major cloud service providers further bolster Nvidia’s prospects.
Goldman raised its forecast for cloud capex growth across the industry, now expecting a 70% increase in 2024, followed by 24% in 2025 and 11% in 2026. This aligns with statements from top cloud players like Microsoft and Meta, which expect heightened spending in the coming years to meet AI demand.
Nvidia’s forthcoming Q4 is expected to reflect early shipments of its next-gen Blackwell GPUs, bolstering momentum from its existing Hopper-based lineup.
Goldman analysts maintained their Nvidia price target of $150, implying around 8% upside from current levels.
They highlighted that key risks to its thesis include a potential drop in AI infrastructure spending, GPU export restrictions, supply chain disruptions, and weaker-than-demand for Gaming GPUs.