Source: Zhitong Finance

A well-deserved leader in the field of AI chips$NVIDIA (NVDA.US)$Unparalleled results that have shocked global investors, and performance forecasts that far exceed expectations, have been announced in succession to dispel concerns about the slowdown in AI-related corporate spending.

After Nvidia's extremely strong results were announced, many well-known Wall Street investment institutions raised their expectations for Nvidia's stock price in the next 12 months. The most aggressive bullish target has reached 1,400 US dollars. Nvidia's stock price rose more than 9% to more than $1,035 per share in early US stock trading.

Nvidia's total Q1 revenue increased 262% year over year to 26 billion US dollars, far exceeding the market's general forecast of 24.5 billion US dollars. Total revenue hit a record high, and total revenue growth rate was Nvidia's third consecutive quarter with a year-on-year growth rate of more than 200%. In terms of performance expectations, Nvidia expects second-quarter revenue to reach around 28 billion US dollars, far exceeding market expectations of 26.8 billion US dollars.

Furthermore, Nvidia announced a major 10-1 stock split and a drastic increase in dividends. These measures will further boost its share price increase. The stock split had no fundamental impact on the value of the stock itself, but after the split plan was carried out, the price of the underlying stock dropped significantly, which meant that stocks with excellent fundamentals could attract more investors to participate in the transaction. Previously, these investors were often hesitant because the stock price was too high.

Strong performance and prospects highlight Nvidia's ranking as the best beneficiary of the AI craze for global corporate layout, and can be called the “strongest seller” in the AI field. Facing a surge in consumer demand for generative artificial intelligence products such as ChatGPT and Google Gemini, and increasingly important AI support tools such as AI software for other enterprises, data center operators from all over the world are making every effort to reserve the company's AI GPUs. These processors are extremely good at handling the heavy workloads required for artificial intelligence.

Nvidia has been deeply involved in the field of global high-performance computing for many years. In particular, the CUDA computing platform built by itself is popular all over the world. It can be described as the preferred software and hardware collaboration system in high-performance computing fields such as AI training/inference.

Nvidia's most popular AI chip H100/H200 GPU accelerator is based on Nvidia's groundbreaking Hopper GPU architecture and provides more powerful computing power compared to previous generations, especially in terms of floating point computation, tensor core performance, and AI-specific acceleration.

More importantly, the AI GPU performance based on the Blackwell architecture is far higher than that of the Hopper architecture. On the GPT-3 LLM benchmark with 175 billion parameter levels, the GB200 inference performance of the Blackwell architecture is 7 times that of the H100 system, and provides 4 times the training speed of the H100 system.

Regarding when Blackwell architecture AI GPUs will be invested in major data centers, Nvidia CEO Hwang In-hoon said that the new Blackwell architecture AI GPU products will be shipped in the second quarter of this year, production will increase in the third quarter, and officially launched in data centers in the fourth quarter. It is expected that “Blackwell architecture chip revenue will increase significantly” this year.

Wall Street quickly releases bullish research reports to raise Nvidia's target price

According to the latest Wall Street price target compiled by Tipranks, Wall Street investment institutions are generally optimistic about the future stock price trend of Nvidia, the AI chip hegemon. The average target price reflecting consistent expectations is even as high as $1104.62, while the consistent rating is a “strong buy”, which means that there is at least 16% potential upside over the next 12 months, and the highest target price is even as high as $1,400.

Currently, Nvidia dominates the AI chip market with a market share of over 90%. Although from$Advanced Micro Devices (AMD.US)$und$Intel (INTC.US)$Competition among other chip companies is becoming increasingly fierce,$Amazon (AMZN.US)$,$Alphabet-A (GOOGL.US)$/$Alphabet-C (GOOG.US)$und$Microsoft (MSFT.US)$Other cloud service providers are also actively designing self-developed AI chips, but Bank of America analyst Vivek Arya believes that Nvidia, led by Hwang In-hoon, can maintain at least 80% of the market share. The AI chip market may reach 100 billion US dollars this year, 200 billion US dollars next year, and is expected to reach at least 300 billion US dollars by 2030.

As a result, Bank of America analyst Arya rated Nvidia as a “buy” and drastically raised the 12-month price target from $1,100 to $1,320. The analyst now believes that Nvidia's earnings per share could reach $50 in two years, higher than the analyst's previous forecast of $35.

Vivek Arya wrote in an investor report: “Not only is Nvidia's sales growing faster than any other major company (first-quarter sales grew 262% year over year), but FCF's profit margin was also over 57%.” “At this rate, Nvidia is likely to generate more than $120 billion in FCF (free cash flow) over the next two years, and is expected to generate more than $200 billion in FCF over the next three years (by 2027), creating strong growth opportunities.

Second, Nvidia's operating expenses increased by more than 40% (in fiscal year 2024 alone, while most chip peers are limiting operating expenses), which helps maintain its strong competitive position. According to Nvidia, every dollar of capital expenditure brings customers $5 in escrow revenue over the next 4 years, so the return on investment is very high.”

Lucas Ma, an analyst at Seeking Alpha, also shared these views. He said that Nvidia's software ecosystem may “have a more profound impact on its long-term performance growth than hardware.”

Furthermore, Wall Street institutions such as J.P. Morgan Chase, Bernstein, Keybanc, and Truist Securities have drastically raised Nvidia's target share price. J.P. Morgan raised Nvidia's 12-month price target from $850 to $1,150, Bernstein from $1,100 to $1,300, and Keybanc from $1,200 to $1,300. Rosenblatt is steadfastly bullish on Nvidia, maintaining a strong bullish price of $1,400, which is the highest bullish price on Wall Street.

Smooth transition to Blackwell architecture

Investors have been worried that Nvidia's customers may choose to wait for its “most powerful performance in history” Blackwell series AI GPUs to be introduced to the market and delay purchasing Hopper architecture series GPUs. However, Hwang In-hoon said during the performance conference call that this was not the case.

“We expect market demand for H100/H200 based on the Hopper architecture to increase this quarter,” Hwang In-hoon said during the conference call. “We anticipate that as we now gradually transition to the H200, we expect demand to significantly exceed supply for a period of time, after which we will transition to Blackwell as soon as possible. As far as I know, every customer is anxious to get their AI infrastructure online. The reason for doing this is because they're saving and making money, and they want to do that soon.”

In the conference call, Wong In-hoon emphasized that Blackwell can be “backwards compatible” with Hopper's architectural system. This means that customers don't need to “wait patiently” for Blackwell to ship, buy Hopper early and enjoy it early, and it will also be “silky” if they want to transition to Blackwell later.

Hwang In-hoon added that for every dollar spent on Nvidia's artificial intelligence GPU infrastructure, cloud service providers such as Amazon, Google, and Microsoft can get $5 of instant GPU hosting revenue over a four-year period.

Wong In-hoon said that Nvidia will generate “significant” revenue related to the Blackwell architecture this year, which also pleasantly surprised market participants. Huang Renxun said that Blackwell-architected GPUs were shipped in the second quarter of this year, production increased dramatically in the third quarter, and officially launched in data centers in the fourth quarter.

Christopher Rolland, an analyst from Susquehanna, said that the review is seen as a reaffirmation of Nvidia's initial product schedule, and next year Blackwell will bring a larger scale of revenue. After Nvidia announced its results, analyst Rolland raised the agency's target share price for Nvidia from $1,100 to $1,200, maintaining an “gain” rating.

Dan Ives, a senior analyst from Wedbush Securities, said that this also shows that corporate demand related to artificial intelligence is growing at an accelerated pace.

Dan Ives wrote in a report: “With the advent of the fourth industrial revolution, more businesses and consumers are rapidly embarking on this path. Nvidia AI GPU chips are essentially the new gold or new oil for the tech industry.” “The global AI revolution began with Nvidia, and in our opinion, the AI party has just begun and the popcorn is ready.”

Ives added that in the next ten years, 60% to 70% of companies will embark on the path of artificial intelligence technology and directly drive an increase of 1 trillion dollars in AI-related corporate spending, which will benefit Nvidia and other technology companies. According to Wedbush's review of financial results for the first quarter, enterprise spending related to artificial intelligence (AI) will increase significantly by 2024, accounting for 8% to 10% of corporate IT budgets. This forecast highlights the rapid growth of AI spending after accounting for less than 1% of IT budgets in 2023.

editor/tolk