Goodmorning and Happy Sunday everyone!

Monday’s reckoning is right around the corner friends, and with last week’s horrific performance as the tech-heralded Nasdaq plunged -4.24%...  investors could definitely use a bit of something to look forward to before the chaos unfolds (besides more rate cut talks of course).

(Source: Giphy) 

Which is why our favorite money hungry investment bank, Goldman Sachs, has taken over the mic with a message for all those AI doubters in the crowd this weekend. You see, according to Goldman, there’s a major announcement on Nvidia’s next earnings docket that could finally put to rest all those sleepless nights about AI chip revenues - proving we aren’t in another overhyped tech bubble… 

(Source: Business Insider) 

Hmmm interesting, more details please…

Look, it’s no secret Nvidia has been on a tear, adding a staggering $2 trillion to the market over the past year. You know it, I know it, and even investors who could give a rats tail about Nvidia know it. Yet, while the company has become my brother in law's favorite “I'm a tech investor” soundbite, many investors are still debating whether the stock is overvalued, especially as it dipped north of 10% last week. 

(Source: X) 

In fact, outside of us here at Stocks.News, this topic on Nvidia has become the tech equivalent of a never ending debate about whether pineapple belongs on pizza (gross)—everyone’s got an opinion about it.

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For instance, many Wall Street skeptics have said their piece,  pointing out that despite the massive investment in Nvidia’s AI chips, there’s not much to show for it in terms of customer revenue. Plus, with Bank of America saying that companies are starting to look for returns to justify the $500 billion already spent, it’s clear some of the math ain’t mathin when it comes to the tech giant’s chip revenue. 

(Source: InvestorPlace) 

However, with that said, here’s where the story gets interesting: Goldman Sachs (being Nvidia’s gangsta bodyguard), recently had a chat with Nvidia’s CFO, Colette Kress, who gave them an inside look at what’s actually going on behind the scenes.

 

(Source: International Business Times) 

According to this meeting, one of the most compelling pieces of evidence Nvidia presented during their last earnings call was a case study involving their HGX H200 servers. Nvidia claimed that for every $1 spent on these servers, an API provider working with Meta’s Llama 3 tokens could generate $7 in revenue over a four-year period.

“Ok, that’s nice, but what does that actually mean?” 

Well first, let’s understand what the actual heck these HGX H200 servers are. These servers are part of Nvidia's high-performance computing solutions specifically designed for AI workloads. Think, the ones China really wants to get their hands on. Meaning they’re the glorious chips equipped with powerful GPUs that accelerate machine learning and deep learning tasks, making them ideal for companies developing cutting-edge AI applications.

(Source: Nvidia) 

And according to Nvidia, this revenue claim boils down to a seven fold return on investment (ROI) over four years, that (according to Kress), works like this: 

Step One: Initial Investment: An API provider invests in Nvidia’s HGX H200 servers.

Step Two: AI Model Training: Using these servers, the provider trains advanced AI models, such as Meta’s Llama 3 tokens.

Step Three: Service Offering: The provider then offers API services based on these trained models to their customers.

Step Four: Revenue Generation: Over four years, the income from these API services is projected to be seven times the initial investment in the servers. 

Now while all of this sounds plausible, and a good rate of return, one example (no matter how impressive) is rarely enough to change the narrative entirely. But again, according to Goldman, Nvidia plans to highlight how its customers are profiting from their AI chips on their next earnings call on August 28th. 

So hopefully we’ll get some more examples of how this is actually working in the real world… not just some quant’s fancy projections.

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But alas, with Goldman’s reassurance from this revenue model that they dove into with Kress, there’s still more on the horizon for Nvidia. Nvidia’s next-gen Blackwell GPU chips are set to roll out, with Goldman expecting a revenue ramp starting in the third quarter and really picking up steam by January - this also led Kress to reassure Goldman that concerns like data center space, power, and cooling won’t disrupt their growth trajectory.

(Source: Nvidia) 

So as expected, this projection along with Goldman Sachs already noted estimates that companies will shell out around $1 trillion on AI capital expenditures in the coming years, has them extremely bullish on Nvidia. 

According to Goldman, Nvidia’s data centers alone could be selling at a rate of $150 billion annually by the end of 2024, which is why they’ve decided to reiterate their personal buy rating on the company, setting a price target of $135, about 14% above current levels. 

(Source: Nasdaq) 

For more context, The Street is even higher at $140.85, implying a 19% upside. But again, despite the optimism, this all comes with skeptics still arguing that the actual revenue needed to justify all this spending is still missing in action.

In fact, David Cahn of Sequoia Capital notes that even tech giants like Google and Meta aren’t generating enough revenue to cover these investments. Basically saying these companies bought a mansion, and now they can't afford the insurance on it. 

(Source: Forbes) 

So with all of this said, in light of Goldman’s optimism on Nvidia and overvaluation warnings amongst other Wall Streeters, what’s the takeaway here?

Well simple, it doesn’t really matter what anyone says until Nvidia gives us the clear cut data and answers on their next earnings call. Everyone can throw in their educated guess’ and estimates… but whether Nvidia silences the doubters or not, everything should be revealed come August. 

(Source: Giphy) 

And with Goldman hyping up this next earnings call, they just put some serious pressure on Nvidia, whether they like it or not. Thanks Goldman… 

Stocks.News holds positions in Google and Meta Platforms as mentioned in the article.