Nvidia’s AI Dominance Secured with Continued Innovation and Market Leadership, Says Goldman Sachs

They are definitely the leader of the A.I. Surge. No one comes close as of yet.

Nvidia Corp. continues to dominate the artificial intelligence market, solidifying its position as the “industry de facto standard,” with no signs of this changing anytime soon, according to Goldman Sachs.

Nvidia will inevitably have competition in AI.

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Analyst Toshiya Hari reaffirmed his bullish stance on the chipmaking giant in a note published Monday. Hari expressed confidence in the “sustainability of the ongoing Gen AI spending cycle” and Nvidia’s ability to maintain its leadership through “consistent and rapid innovation across Compute, Networking, and Software,” following a positive meeting with Nvidia’s CFO, Colette Kress.

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The sharp increase in hyperscale AI capital expenditures (capex) over the past 18 months has raised investor concerns about the sustainability of this growth pace. While the debate on Gen AI’s adoption rate continues and a cyclical correction is expected, recent comparisons of the Gen AI cycle with past Compute build cycles provide some reassurance, according to Goldman Sachs. Kress highlighted that data center space, power, and cooling concerns “are unlikely to derail the company’s growth trajectory for the foreseeable future.”

Kress discussed the expected evolution of Gen AI models over the medium to long term, anticipating a blend of models, including more complex ones such as multi-trillion parameter models, as the industry moves to “multi-modal models requiring audio- and video-based training and inference,” in addition to text. She also foresees smaller, more agile models catering to specific verticals or use-cases, especially as Gen AI spreads across the enterprise market.

Regarding sovereign AI, Kress noted that while governments lag behind the largest cloud service providers in their AI journey, Nvidia is well-positioned to benefit from the development of AI infrastructure tailored to “local, idiosyncratic requirements,” such as specific languages and demographic considerations.

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Goldman Sachs sees significant potential for further gains despite Nvidia’s year-to-date outperformance. The stock trades at next twelve months price-to-earnings (P/E) and enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) multiples relative to the sector median that are “well below their respective historical medians.”

Hari expects Nvidia to maintain its status as the “industry de facto standard,” with a 12-month price target of $135, based on 50x their normalized EPS estimate of $2.70. The scenario analysis offers a compelling risk-reward profile, with a potential 106% rally in the most bullish outcome and a 77% drop in the most bearish one.

Key downside risks for Nvidia include a sudden decline in Gen AI infrastructure spending by major cloud service providers and enterprises, weakening demand for gaming GPUs, further restrictions on GPU exports, and supply chain issues such as delays in new product introductions.

Major Points:

• Nvidia continues to dominate the AI market, solidifying its position as the industry standard.
• Goldman Sachs analyst Toshiya Hari reaffirms a bullish stance on Nvidia.
• Significant potential for Nvidia’s stock growth despite year-to-date outperformance.
• The company is expected to sustain its growth trajectory through innovation and strategic positioning.
• Key risks include potential declines in AI infrastructure spending and supply chain issues.

Lap Fu Ip – Reprinted with permission of Whatfinger News