Nvidia's sell-off: Why this analyst is still bullish on the stock

Nvidia's (NVDA) stock has stumbled as investors grow concerned the AI demand hype may be slowing. Goldman Sachs lead analyst Toshiya Hari is still bullish on the stock for a couple of reasons. First, he says, "Demand for accelerated computing continues to be really strong," adding that it's more than hyperscalers looking to buy Nvidia's chips. Second, he thinks the company's competitive positive is still strong. He also thinks the stock has an attractive valuation and that the sell-off has been overdone.

Investors have been increasingly scrutinizing the amount of money Big Tech has been spending on AI without much return on investment so far. Hari agrees that companies "need monetization for this to be sustainable," but he notes hyperscalers are seeing some return on those AI investments. He adds that if a lack of monetization becomes a problem, it will affect many companies, not just Nvidia.

Watch the video above to hear what Hari has to say about companies like Amazon (AMZN) and Meta (META) developing their own chips.

For more expert insight and the latest market action, click here to watch this full episode of Asking for a Trend.

This post was written by Stephanie Mikulich.

Video transcript

We are here at the Goldman Sachs 2024 com community CIA and technology conference.

I am here on set with our executive editor, Brian.

So we are thrilled to be joined by to she to she is of course of the lead analyst covering semiconductor that Goldman, thank you so much for making time with us.

We got to start on the video of it all you've got to buy on video despite the record, sell off seen stock over the last week.

Make the case.

Are we still a buy?

Yeah.

Thank you for having me.

First of all, it's great to be here.

Yes.

So we've had a buy rating on NVIDIA for quite a long time.

And to your point, the recent performance hasn't been great, but we do remain positive on the stock.

A couple of things I would say, first of all, demand for accelerated computing continues to be really strong.

We tend to spend quite a bit of time on the hyper scalars, the Amazons, the Googles, the Microsoft the world.

But you are seeing a broadening in the demand profile into enterprise, even the sovereign states.

Number two, I think their competitive position continues to be really strong.

I think at this conference, you'll hear from NVIDIA Jensen Hong.

We have Lisa Su we have a couple of the hyper scalar at the show as well.

So there is a bit of a, you know, merchant versus custom silicon debate going on.

But we do think within merchant silicon, NVIDIA is the go to and even versus custom silicon, they've got the edge in terms of the pace of innovation and last but not least from a valuation perspective, um perhaps for the wrong, wrong reasons, but the stock has come in quite a bit uh on our numbers on next year's earnings, the stock is trading in the low twenties, which I think is very inexpensive for a stock with this kind of profile.

Do you think, do you think the sell off is just overdone?

Yes, we do.

I think clearly the stock had great, great momentum until sort of the June, July time frame and stocks never go up in a straight line.

So we kind of appreciate why the stock has given back some I think the debate around is this sustainable into 2026 is a fair debate.

So people are looking beyond 2025 valuing and video on 2026 already valuing on 25.

But depending on how the outlook is into 26 what kind of multiple you apply to 25 numbers is kind of the key debate and interestingly, we were having a very similar debate 12 months ago in 2023 when the stock was sort of range bound, the back half of 23.

And that was due to, again, multiples going from call it 50 times down to 3025 and back then it was ok, 24 is kind of the bag.

But what about 25?

So we're having a very similar conversation as of today into 26 when you look back on this earning cycle so far too, there was this big question about Roi on A I investors getting a little bit of fatigue perhaps on the amount of money being spent on A I.

How much of a headwind could that be for NVIDIA companies are getting dinged for their spend on the expensive and video chips?

Yes, I think it is something to look out for.

Again, lack of customer roi whether it be the hyper scalar, whether it be the enterprises that are trying to leverage A I that becomes a problem.

At some point, we need monetization for this to be sustainable.

I think the hyper scalar do make a pretty good case in terms of their roi I think if you look at ad revenue, you look at things like Instagram, the platforms, they are leveraging A I and they are getting the return.

So we're confident as a collective unit that this is sustainable.

But to the extent there is a lack of monetization.

That could be an issue for not just NVIDIA but for the, for the overall ecosystem, you mentioned the hyper scalers, that's the Amazons Metas Microsoft's of the world.

They're building their own chips now and they're certainly cheaper than Nvidia's.

Can they ever compete directly with NVIDIA and take up more market share than they are currently.

So they do, they have been competing with NVIDIA in some shape or form.

I would say most of the custom silicon is there to address internal workloads.

In the case of Google, it would be Google search but GCP which is external looking, they're still buying a boatload of NVIDIA GPUS and you can make the same case for Amazon.

So I think you'll see a bifurcated market where again, the internal workloads are addressed by custom internally designed silicon.

But what's outward looking, they'll continue to buy NVIDIA GPUS, Amd GPUS and so on and so forth.

Important to note you're not just the NVIDIA, a Goldman Sachs on the other end of the spectrum you cover Intel and on the other end of the spectrum, you have a sell rating on Intel.

Now, the stock is nearer what historic loads are announcing thousands of layoffs, earnings are depressed.

What does Intel need to do?

I want to say save itself because that's just ridiculous.

But how do they, their stock working and when did their earnings start to improve?

And when does the investment pieces start to it's a great question to your point.

To your question.

We've been pretty cautious on the stock for some time.

I think for starters it would help for the company to start hitting what they guide to.

Right.

They've disappointed the market quite frequently and that's never good for a stock price.

So that's number one, number two, medium to long term, they definitely need to get on par if not exceed or surpass TSMC from a process, no technology standpoint because without that, they are behind the curve from a founder standpoint.

If they don't have the best tech or good tech customers are not coming to Intel, they're going to continue to work with TSMC.

And then on the product side, you can't really compete effectively with the likes of a MD NVIDIA, you know, Qualcomm, so on and so forth.

Do you think they will ever be Intel again where they are in that same discussion with NVIDIA and D or their time has passed, never say never.

But I think it's fair to say that it's going to be an uphill battle because again, they, in hindsight, they were perhaps complacent didn't make the right investments.

They sort of allowed TSMC to catch up and to beat them if you're a customer of TSMC and you've got this massive opportunity set in front of you.

That is A I for you to essentially leave TSMC and go to Intel or any other founder for that matter.

That's a lot of risk.

So I think for Intel, for sure, but even companies or founders outside of Intel to compete with TS MC and the broad growing eco ecosystem, again, it's going to be an uphill battle to thank you so much for joining us and making time.

We really appreciate it and thank you to our audience.

Thank you for listening.

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