According to a Goldman Sachs note this week, Nvidia is prepared to silence critics when it announces Q2 earnings results next month. The outlook emerged after Goldman Sachs met with Nvidia CFO Colette Kress.
There are growing concerns that Nvidia's customers' profits are insignificant compared to the billions of dollars spent on AI chips. "End-user companies and their investors will soon look for revenue to justify the $500 billion already spent," according to a recent Bank of America note. "No one denies the computing power. But after one last frenzied rally around the latest chips, investors may come to doubt the near-term economics."
Despite the criticism, Nvidia's Kress said the company will begin sharing data on how its AI graphics processing units (GPU) investments translate to end users' profits.
Nvidia to Disclose ROI Metrics From Next Earnings Call
Goldman Sachs' note detailing the recent meeting with Kress highlighted that Nvidia will disclose profits its end users are generating from the rapid adoption of AI GPU. The move will boost investor confidence and introduce transparency in investor relations.
"In order to assist investors in appreciating customers' return on investment (ROI) profiles, Ms Kress noted that similar to how they shared data from Meta on their most recent earnings call, they intend to provide ROI metrics from customers on its next earnings call as it aims to instil confidence in investors," Goldman Sachs said.
During its most recent earnings call, Nvidia said that for each dollar spent on the HGX H200 servers, an API provider serving Meta's Llama 3 tokens could bring in revenues of $7 in four years.
Revenue Roadmap for Blackwell Chips
The meeting with Kress led Goldman Sachs to estimate limited revenue from the next-gen Blackwell GPU chips for Nvidia's third quarter, "followed by a more significant ramp in FY4Q (January) and FY1Q (April)."
However, Kress pointed out that investors' common data centre concerns won't impact the company's growth. Goldman Sachs wrote, "Kress also stated that inputs such as data centre facility space, power, and cooling—all concerns often raised by investors as it pertains to customers' ability to build out large-scale data centres—are unlikely to derail the growth trajectory of the company for the foreseeable future."
Meanwhile, Taiwan Semiconductor Manufacturing Company announced yesterday that the demand for AI chips remains robust while the supply is still tight. TSMC manufactures high-performance GPUs for Nvidia. Company Chairman C.C. Wei stated that supply struggles will likely persist through 2025.
TSMC also integrated NVIDIA cuLitho with its software and manufacturing workflows to support the Nvidia Blackwell architecture GPUs in the future.
Goldman Sachs Maintains A "Buy" Rating on Nvidia
The Wall Street bank is confident that Nvidia will announce surprisingly positive earnings, eventually leading to positive EPS revisions. Goldman Sachs reiterated its "Buy" rating on the Nvidia stock with a price target of $135 per share, implying a potential upside of over 11% from current trading levels of $121.
The banking giant said it remains bullish on Nvidia as the meeting with Kress "reinforced" its belief in the "sustainability of the ongoing Gen AI spending cycle as well as Nvidia's ability to maintain its leadership position through consistent and rapid innovation across Compute, Networking and Software."
Furthermore, 41 Wall Street analysts had an average 12-month target price of $140.85 for Nvidia shares, with a high forecast of $200.
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