A Fresh Perspective on Nvidia: Promising Future Ahead

According to an analysis conducted by Susquehanna analyst Christopher Rolland, the outlook for Nvidia Corp (NASDAQ: NVDA) is highly positive, with a target stock price of $850, an increase from the previous price of $625.

Rolland notes that Nvidia is expected to have a fourth-quarter advantage of $1.58 per share, and the company is projected to generate $99 billion in revenue by the year 2025. The financial results report will be published on February 21.

One of the key factors contributing to the positive outlook is the strong validation of GPU unit information for data centers. With data centers currently accounting for over 80% of Nvidia’s revenue, the demand for artificial intelligence (AI) remains high. Recent comments from Meta Platforms Inc. (NASDAQ: META) and Tesla Inc. (NASDAQ: TSLA) further support this, as they indicate continued purchases of key GPU units for their operations.

Despite concerns about the transition to B100, Rolland suggests that this obstacle is becoming less likely to impede Nvidia’s progress. While there may be a growth slowdown in the third quarter, the analyst remains optimistic about the company’s performance for the rest of the year.

Rolland also highlights the impressive allocation of H100 units to Nvidia’s largest customers. The remaining units are set to be delivered in the first quarter, which bolsters his confidence in the first-quarter forecasts. Although availability remains a challenge, it has improved compared to previous periods. This is evidenced by a 53% increase in purchase orders in the previous quarter and the assurance from CFO Kress that availability will continue to improve throughout the year.

While Nvidia’s shift in product composition to focus exclusively on H100 units may have a limited impact on revenue and growth, Rolland estimates that the market share of A100 units will decrease from 8% in the fourth quarter to 5% in the first quarter. The company’s strategic attention to H100 units is expected to yield a twofold benefit in terms of average selling price (ASP).

Looking ahead, the introduction of the H200 units in the second quarter and the long-awaited B100 units in the fourth quarter could positively impact the overall product composition.

In terms of the Gaming segment, Rolland anticipates that the results will meet or slightly exceed expectations. Positive reviews of Advanced Micro Devices, Inc.’s (NASDAQ: AMD) graphics cards and continued interest in the 40 series, as indicated by Steam data, support this outlook.

For the Pro Viz segment, the analyst expects a continued high demand for computer offerings designed to work with Omniverse Al artificial intelligence technology.

However, the Auto segment poses a more challenging outlook for Nvidia. The company has previously highlighted a decline in demand in the Chinese electric vehicle market, which may persist for a longer period. Additionally, there has been a global decline in demand for electric cars, further impacting the segment.

Despite these challenges, Nvidia is expected to maintain strong gross margin power. However, significant growth above 75% is not anticipated.