5 Nvidia Analysts On AI Inflection, A $1-Trillion Opportunity, Silicon-Software Split And Sky-High Valuation

At the Nvidia Corporation NVDA GTC 2022 virtual keynote event, CEO Jensen Huang announced several breakthrough, innovative products. The company also hosted an analyst day along with the event. Here's what the Street has to say. 

The Nvidia Analysts: Rosenblatt Securities analyst Hans Mosesmann reiterated a Buy rating and $400 price target for Nvidia shares.

Susquehanna Financial Group analyst Christopher Rolland has a Positive rating and $360 price target.

Credit Suisse analyst John Pitzer has an Outperform rating and $400 price target.

Raymond James analyst Chris Caso maintained a Strong Buy rating and $365 price target.

KeyBanc Capital Markets analyst John Vinh reiterated an Overweight rating and $350 price target.

Massive AI Inflection Ahead, Rosenblatt Says: Tuesday's announcements set the stage for a massive AI inflection that targets a $1-trillion total addressable market spread among gaming, AI enterprise and omniverse, chips/systems and automotive, Rosenblatt analyst Mosesmann said in a note. 

The company outlined a new business model that leverages GPU, CPU and DPU, with optimized software system/enterprise software sitting on top, the analyst said. Over time, the analyst sees software accounting for over half of Nvidia's sales.

The 4nm-based Hopper and optimized Grace CPU will likely open to Nvidia the high end of the high-performance computing and hyperscale markets, Mosesmann said.

Intel Corporation INTC is at heightened risk on both the GPU and CPU fronts, the analyst said. Nvidia's accelerated pace of innovation could be supportive of Advanced Micro Devices, Inc. AMD, Broadcom, Inc. AVGO, and Marvell Technology, Inc. MRVL, all of which should be able to keep up with Nvidia, he added.

Related Link: Ahead Of Tech Earnings, Analyst Names Nvidia And These 4 Semiconductor Stocks As 2022 Top Picks

Susquehanna's Takeaways On Nvidia: The specifications for Nvidia's new 4nm H100 GPUs exceeded Susquehanna's previous expectations, analyst Rolland said in a note. The Grace ARM CPUs are expected to be launched in the first half of 2023, the analyst noted.

The H100 and Grace can be scaled into large multichip modules, acting similar to monolithic die, using advanced interconnect and packaging technologies, the analyst said.

Nvidia announced a new pipeline of automotive design wins, with BYD Company Limited BYDDF and Lucid Group, Inc. LCID being added as new customers, Rolland said. The company's addressable market has now grown to $1 trillion, driven by a step-up in automotive and metaverse opportunities, the analyst said. 

"Scalable power-efficient GPUs and CPUs, coupled with end-to-end networking, further solidify the company's market position, while also expanding into new adjacent markets," Rolland said.

Confidence In Nvidia Is High, Credit Suisse Says: At the analyst day, Nvidia increased its long-term TAM to $1 trillion, with a 50-50 breakup between silicon and software, Credit Suisse analyst Pitzer said.

The Hopper GPU architecture, which will succeed Ampere, likely represents the most significant generational improvement in history, the analyst said. 

While NVDA did not update its first-quarter guidance, confidence is high given a still-lean GPU inventory, strong Data Center Group visibility, improving gross margin and supply in the second half of 2023, he said. 

"While the AD was mostly INLINE with expectations, investors are likely to remain a bit skeptical of SW opportunity until ramps are more tangible and with the stock up ~30% in the last 10 days, we expect the stock to hold gains rather than move higher in the near-term," Pitzer said.

RayJay Says Nvidia's High Valuation Is Justified: The most impactful information for the longer term is Nvidia's quantification of its software TAM, RayJay analyst Caso said. The company believes it is equal in size to its datacenter chip and system TAM at $300 billion, and three times larger than the gaming TAM at $100 billion, he added.

The company also shared additional information on Grace CPU, which is likely to be paired with most datacenter GPUs over time, the analyst said. This, according to the analyst, is a very significant driver of datacenter growth starting next year.

"Net, while the stock is among the most highly valued at 40x, that multiple is justified by 50% annual revenue growth for the last two years (35% annually over the last 5), and such significant product cycles and new revenue streams going forward," Caso said.

Nvidia Positioned To Sustain Growth, KeyBanc Says: Nvidia remains uniquely positioned to sustain outsized growth related to machine learning/AI secular drivers and to monetize its assets/IP in software, KeyBanc analyst Vinh said.

NVDA Price Action: Nvidia shares slipped 3.36% Wednesday, closing at $256.34.

Related Link: Why Nvidia Is Needham's Top AI/ML Stock Pick For 2022

Photo courtesy of Nvidia.