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Nvidia plans to reveal examples of how its end customers make money on AI chips, Goldman Sachs says.
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The reveal is about to can be found in Nvidia’s earnings call, and it could silence AI skeptics.
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Goldman Sachs expects Nvidia to over again beat earnings estimates when it reports in late August.
Nvidia is about to silence AI critics when it declares its second-quarter earnings ends in late August.
That’s in response to a Monday note from Goldman Sachs, which details takeaways from a recent meeting with Nvidia’s chief financial officer, Colette Kress.
There are growing worries that for all the a complete lot of billions of dollars being spent on Nvidia’s AI chips, there’s little to point from it in the form of profits and revenue for Nvidia’s customers.
“End-user firms and their investors will soon seek for revenue to justify the $500 billion already spent,” Bank of America said in a note earlier this week. “No one denies the computing power. But after one last frenzied rally around the most recent chips, investors may come to doubt the near-term economics.”
But in response to Goldman Sachs, Kress said Nvidia planned to concentrate on the profits its end users are generating from the growing use of its AI-enabled GPU chips.
“With the intention to help investors in appreciating customers’ ROI profiles, Ms. Kress noted that, similar to how they shared data from Meta on their latest earnings call, they intend to supply ROI metrics from customers on its next earnings call since it goals to instill confidence in investors,” Goldman Sachs said.
On its latest earnings call, Nvidia said that for every $1 spent on its HGX H200 servers, an API provider serving Meta’s Llama 3 tokens could generate $7 in revenue over 4 years.
Other takeaways from Goldman’s conversation with Kress include the expected revenue ramp of Nvidia’s next-generation Blackwell GPU chips.
Goldman expects revenue from the Blackwell chip to be limited in Nvidia’s third quarter, “followed by a more significant ramp in FY4Q (January) and FY1Q (April).”
“Ms. Kress also stated that inputs reminiscent of data center facility space, power, and cooling — all concerns often raised by investors since it pertains to customers’ ability to construct out large-scale data centers — are unlikely to derail the expansion trajectory of the company for the foreseeable future,” Goldman Sachs said.
Overall, Goldman Sachs said it was confident Nvidia would deliver a positive earnings surprise leading to positive EPS revisions when it reports results next month.
“We reiterate our Buy rating on NVDA since the meeting reinforced our belief throughout the sustainability of the continuing Gen AI spending cycle along with Nvidia’s ability to maintaining its leadership position through consistent and rapid innovation across Compute, Networking and Software,” Goldman Sachs said.
The bank reiterated its $135 price goal for Nvidia, which represents potential upside of 14% from current levels.
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