Analysts Says Nvidia's Stock Could Undergo Apple-Like Transformation With Focus On Software And Services

Nvidia NVDA could be on the brink of an Apple-like transformation as it shifts its focus to software and services, according to analysts at Melius Research.

What Happened: Melius Research analysts have drawn a parallel between Nvidia’s shift and Jim Cramer‘s “own it, don’t trade it” names, reported CNBC on Monday. The analysts highlighted Nvidia’s rapid growth in the software and services sector, which could bring significant benefits to investors.

Despite the current focus on Nvidia’s AI chips, the sustainability of their demand has been questioned by some on Wall Street. The company’s growing software and services business could help mitigate this volatility, the analysts noted.

"Nvidia's business is evolving faster … and software sales can help smooth out volatility."

Investors typically assign a premium to software-related earnings compared to those tied to hardware, as software sales are generally recurring and more predictable. This shift could lead to a “multiple expansion” for Nvidia’s stock, potentially increasing its value.

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Why It Matters: Nvidia’s software and services business, including the AI supercomputer DGX Cloud, is on track to generate $1 billion in annualized revenue by the end of fiscal year 2024. This figure is expected to rise to $3 billion within a few years, providing long-term margin support.

Notably, the inclusion of DGX Cloud on the platforms of cloud service providers like Microsoft and Oracle has led to strong growth in their respective cloud divisions. Other providers, such as Google and Amazon, are also expected to benefit from this trend.

The potential transformation of Nvidia’s stock is particularly significant in the context of the current market trends. As AI stocks dominate in January, with Nvidia leading the charge, this shift in Nvidia’s business model could further solidify its position as a market leader.

Additionally, this news comes on the heels of another analyst’s forecast that Nvidia’s dominant position in Gen AI infrastructure is unlikely to be challenged in the near term. This suggests that Nvidia is not only leading the current AI market but is also strategically positioning itself for long-term success.

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