High-Flier Nvidia Could Rally Another 70% On 'Extremely Strong' AI Data Center Demand, Says Analyst

Nvidia Corp. NVDA has been on a remarkable rally, surging over 200% year-to-date. Analyst John Vinh from KeyBanc Capital Markets believes there’s still room for more growth in the coming year.

Price Target Boost: Vinh, maintaining an Overweight rating on Nvidia shares, has raised the price target from $670 to $750, indicating a potential upside of around 67.5% from current trading levels.

The Nvidia Thesis: Following KeyBanc’s quarterly supply chain checks, Vinh reported that while China’s demand remained weak, it didn’t deteriorate significantly. 

Some recovery was observed in the PC and smartphone markets, according to Vinh. Inventory destocking in the channel showed progress. The AI data center demand remained exceptionally strong, outpacing supply by approximately 20% due to limited chip-on-wafer-on-substrate (CoWoS) capacity.

The Android smartphone supply chain experienced rush orders despite concerns about Huawei reentering the market, with Nvidia, Synaptics Inc. SYNA, Intel Corp. INTC, and Qorvo, Inc. QRVO benefiting the most from these trends.

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Second-Half Surge Coming? Vinh sees an opportunity for Nvidia in the second half, driven by “very strong” demand for L40S, a GPU designed for data center workloads like generative AI and large language model inference and training. He estimates a revenue contribution of $2.25 billion to $3 billion from this GPU.

Moreover, Nvidia is expected to benefit from a favorable mix shift from A100 to a higher ASP H100 in the second half. The company has also secured additional CoWoS capacity from Amkor Technology, Inc. AMKR at Taiwan Semiconductor Manufacturing Company Ltd. TSM.

Vinh predicts that the Microsoft Corp. MSFT/Open AI alliance will procure 450,000 Nvidia GPUs this year, translating to $11 billion in revenue, and 1.6 million GPUs next year, contributing $40 billion in revenue. 

Apple is expected to purchase 200,000 H100 GPUs next year, representing $5 billion in revenue, Vinh said.

“We believe NVDA has order and backlog visibility through 1H24 at this point and have not heard of any order cuts from its major CSP customers,” Vinh said.

KeyBanc expects Nvidia's data center revenue of $45 billion for fiscal year 2024, up 201%, and $101 billion for fiscal year 2025, up 124%.

Nvidia Price Action: Nvidia shares closed Monday's session up 2.95% at $447.82, according to Benzinga Pro data.

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