Nvidia (NASDAQ:NVDA) shares’ stunning rise has been built on insatiable demand for its best-in-class AI chips against a backdrop of estimate-smashing quarterly readouts.
Given that the stock has surged 800% over the past two years, it’s fair to say that initiating a Buy rating at this point is a gutsy move for any analyst.
That, however, is exactly what Redburn Atlantic’s Timm Schulze-Melander has just done. The analyst started coverage of Nvidia with a Buy rating and a $178 price target, suggesting the stock still holds an additional 21% upside. (To watch Schulze-Melander’s track record, click here)
Schulze-Melander acknowledges that Nvidia’s stock has already reached impressive heights, but he remains confident in the potential for additional gains. While he notes that following the stellar share price performance, “questions have emerged regarding the durability of the AI market as well as the technological sustainability of Nvidia’s position and financial returns,” he has an explanation ready.
“We see two primary growth engines that the market underestimates,” says the analyst. “Firstly, accelerated compute, or parallel processing with graphics processor units (GPUs), offers an important path to reduce the cost of computing now that Dennard scaling and Moore’s law have slowed.”
Accelerated computing also significantly boosts processing speed while reducing power consumption by 18 to 20 times. Currently, AI drives the high demand for accelerated computing, which is expected to support robust growth in the semiconductor industry through 2030.
But there’s also a more specific reason. Schulze-Melander goes on to add, “While the hyperscalers are keen to limit Nvidia’s dominance, the market is underestimating the scope for enterprise, government and GPU specialist cloud service providers to contribute to demand.”
These customers are deeply invested in Nvidia’s CUDA (Compute Unified Device Architecture) software and increasingly depend on Nvidia’s comprehensive system-level solutions. CUDA’s strong competitive advantage, with its integrated application libraries and rapid 12-month innovation cycle, makes it difficult for Nvidia’s competitors to “usurp its market dominance.”
The combination of the biggest installed base of high-parallelism processors (GPUs), a leading software interface (CUDA), and the most extensive collection of application libraries in the industry, make Nvidia “particularly well positioned” to keep on thriving in this environment.
As such, based on the above, Schulze-Melander sees Nvidia keeping a “sustainable” 65% EBIT margin along with a 38% CAGR (compound annual growth rate) in EPS between 2024 and 2030.
Most of Schulze-Melander’s colleagues are on board with such a thesis. Of the 42 analyst reviews submitted during the past 3 months, 39 say Buy and just 3 recommend to Hold, all culminating in a Strong Buy consensus rating. The average price target currently stands at $157.82, suggesting the stock will deliver gains of 7.5% in the year ahead. (See Nvidia stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
