Nvidia: What Questions Do Investors Have?

Analysts at Citi have been actively engaging with investors in Boston and Europe, discussing key insights regarding Nvidia’s stock. The firm indicates that the company is still in the early stages of AI adoption, with enterprise AI demand expected to rise significantly alongside the development of AI agents.

Citi analysts foresee Nvidia’s stock remaining stable until the CES event in early 2025, when new product launches, including Blackwell GPUs, are anticipated to enhance sales and profit margins. A recurring concern among investors is Nvidia’s gross margin trajectory, with predictions that it will reach a low point of around 72% in the January quarter, before stabilizing in the mid-70s as the Blackwell series gains traction.

Another point of interest for investors is the competition between Nvidia’s GPUs and custom application-specific integrated circuits (ASICs). While ASICs may be beneficial for certain specialized tasks, Nvidia’s GPUs are valued for their versatility.

As AI models continue to evolve, there is expected to be strong demand for Nvidia’s GPUs, which can support a variety of applications. Moreover, many enterprises are adopting multi-cloud strategies, and Nvidia’s GPUs allow them to run applications across different cloud platforms without the need for rewrites.

Citi emphasizes that data center operators are increasingly focused on overall cost and return on investment (ROI), where Nvidia maintains a competitive edge due to its ability to support diverse applications, including AI. Analysts noted that data center operators prefer Nvidia for its hardware that can handle multiple applications rather than investing in accelerators with limited use cases.

Investors are also closely monitoring Nvidia’s vertical integration strategy, which has evolved from chip production to complete systems, adapting to the slowdown of Moore’s Law. The anticipated sales mix from the Blackwell series, shifting towards the GB200 format from the B100’s 8-GPU design, is expected to optimize both cost and ROI.

Looking ahead, there is optimism among investors regarding long-term ROI, particularly as Nvidia focuses on AI markets such as social media and e-commerce. However, the maturation of generative AI into disruptive business models may require some patience.

Analysts expect to see positive ROI indicators next year, particularly driven by GPU-as-a-service providers. With a Buy rating and a price target of $150, Citi remains positive about Nvidia’s prospects, although potential risks could arise from competition in gaming and fluctuations in the auto and data center markets.