Goldman Sachs strongly supports NVIDIA: Profits will significantly exceed market expectations by 2025
Goldman Sachs expects that NVIDIA will announce the ROI (Return on Investment) of specific customers during the Q2 conference call to boost market confidence. It is expected that its Q2 revenue and earnings per share will reach $29.769 billion and $0.68, respectively, exceeding market expectations by 4.1% and 5.9% respectively. By 2025, earnings per share are expected to exceed market expectations by 11%
Author: Li Xiaoyin
Source: Hard AI
The uncertainty of the US economic outlook is testing investors' confidence in technology stocks. Can NVIDIA, as the leader in AI, continue to renew the "AI faith"?
On August 18, Goldman Sachs analysts Toshiya Hari and Anmol Makkar released a latest research report stating that benefiting from strong demand from large cloud service providers and enterprise customers, NVIDIA will continue to maintain its strong position in the AI and accelerated computing fields, and maintain its "buy" rating on the stock.
The report pointed out that although the delay in shipping the Blackwell series GPUs has brought volatility to the fundamentals, based on official statements and supply chain related data, there is still confidence in NVIDIA's profitability. It is expected that its earnings per share will reach $4.16 by 2025, which is 11% higher than the market's general expectations.
In terms of stock price prospects, Goldman Sachs has set a 12-month target price of $135 for NVIDIA, which still has an upward potential of 8.4% compared to last Friday's closing price.
Strong Demand for AI, Significant Competitive Advantage
The report stated that the reason for continuing to be optimistic about NVIDIA's growth prospects is mainly due to the strong demand for AI infrastructure such as GPUs.
As an upstream in the supply chain, TSMC provides foundry services for chip companies such as NVIDIA, Qualcomm, and AMD. Taking TSMC as an example, the report pointed out that in the second quarter of the year, TSMC's HPC (High Performance Computing) business revenue accounted for more than half for the first time, indicating strong AI demand.
During the conference call after the financial report, TSMC Chairman and CEO Wei Zhejia also stated that the tight supply situation of CoWoS capacity is expected to continue until 2025. The CoWoS capacity for this year and next year will at least double, showing strong demand prospects.
Furthermore, NVIDIA will also benefit from its large customer base. The report stated that NVIDIA has established a large and continuously growing base of adopters, with significant competitive advantages. With GPU acceleration iterations, NVIDIA is expected to continue to maintain and benefit from its leading position in the field.
On August 28, NVIDIA will announce its Q2 performance report for the 2025 fiscal year. Goldman Sachs believes that the Q2 report will show that demand for NVIDIA's H100 GPU will remain strong, and H200 will begin mass shipments.
Goldman Sachs expects that due to the growth in data center revenue and strong operational leverage, NVIDIA's Q2 revenue and earnings per share will exceed expectations, reaching $29.769 billion and $0.68 per share, respectively, which is 4.1% and 5.9% higher than market expectations.
H100, H200, and Spectrum-X will be key drivers of revenue growth in Q2, and the step-by-step growth of TSMC's CoWoS capacity may also support revenue growth from the supply sideIn terms of the data center department, Goldman Sachs expects that by Q3, the department's revenue will further increase, achieving a 15% quarter-on-quarter growth; by 2026, data center revenue will achieve double-digit year-on-year growth.
Initial signs of investment returns, or may announce ROI to boost confidence
Currently, the market's main concern is focused on whether the significant capital expenditure on AI projects can generate commercial returns.
The report indicates that global cloud capital expenditure is expected to increase by 60% and 12% year-on-year in 2024 and 2025, respectively, which is higher than the previous expectations of 48% and 9%.
Moreover, due to concerns about delays in the delivery of Blackwell series chips and the sustainability of data center revenue growth, NVIDIA's valuation has recently declined, with a P/E ratio of 42 times, 1% lower than the median level of the past three years, reaching a historically low level.
However, the report also adds that some customers have already provided preliminary data, showing partial returns on generative AI in the advertising industry. Goldman Sachs expects that after the Q2 earnings call, NVIDIA will announce specific customer return on investment (ROI) metrics to boost market confidence.