Loading...

Advancements In AI Will Drive Future Data Center Demand

Published
02 Sep 24
Updated
17 Oct 25
AnalystConsensusTarget's Fair Value
US$218.51
17.5% undervalued intrinsic discount
17 Oct
US$180.28
Loading
1Y
29.2%
7D
0.3%

Author's Valuation

US$218.5117.5% undervalued intrinsic discount

AnalystConsensusTarget Fair Value

Last Update17 Oct 25
Fair value Increased 2.12%

NVIDIA's analyst price target has been raised by approximately $4.53 to $218.51. Analysts cite accelerating AI infrastructure demand, sustained leadership in data center solutions, and confidence in earnings power as key drivers for the higher valuation.

Analyst Commentary

Analyst sentiment toward NVIDIA continues to be dominated by optimism regarding the company's AI infrastructure leadership, expanding addressable markets, and consistently strong data center execution. However, there are measured concerns around competitive dynamics and the scale of recent investments. Below, key bullish and bearish takeaways are summarized:

Bullish Takeaways
  • Bullish analysts highlight NVIDIA's accelerating demand in AI infrastructure, with hyperscalers and enterprise customers providing strong forward visibility into revenue growth for several years.
  • Upward revisions in earnings estimates are based on expectations that NVIDIA will maintain its leadership position through anticipated ramp-ups in Blackwell products and significant AI data center deployments, including incremental deals with OpenAI.
  • Analysts frequently note confidence in NVIDIA's earnings power. They project EPS growth well above market consensus as AI spending continues to outpace supply across industry verticals.
  • Some research updates emphasize NVIDIA's resilience amid increased competition. These updates cite improved manufacturing yields and product performance that support further market share gains.
Bearish Takeaways
  • Bearish analysts express caution over the implications of NVIDIA's sizable investments in strategic partners such as OpenAI. They question whether the company is taking on the role of "investor of last resort" and increasing financial risk.
  • There are concerns about competitive risks from rival chipmakers, particularly as other vendors enter or expand in the AI and data center markets. This competition could potentially pressure NVIDIA's pricing and margins.
  • Some analysts warn of possible headwinds from supply chain constraints and regulatory uncertainties, especially regarding sales to China and emerging export controls.
  • The elevated expectations embedded in NVIDIA's valuation may lead to volatility if execution falls short or key investment cycles slow. Some sentiment around recent earnings reports is mixed for this reason.

What's in the News

  • Nvidia and BlackRock are part of a $40 billion consortium acquiring Aligned Data Centers. This marks a significant expansion in data center capacity and ownership for AI infrastructure. (Financial Times)
  • Nvidia is partnering with Firmus Technologies on a $2.9 billion project to build AI data centers powered by renewable energy across Australia. The project will feature Nvidia's GB300 chips and is set to go online by April. (Bloomberg)
  • Oracle Cloud Infrastructure has launched Zettascale10, a supercomputer cluster connecting hundreds of thousands of Nvidia GPUs. It delivers up to 16 zettaFLOPS of performance and supports collaborations such as OpenAI's Stargate project in Texas. (Bloomberg)
  • Meta and Oracle are standardizing on Nvidia Spectrum-X Ethernet switches to accelerate AI data center networking at scale, unlocking greater efficiency and speeding AI training workloads. (Nvidia Announcement)
  • China's government is intensifying enforcement and scrutiny of Nvidia’s AI processors, mobilizing customs officers for checks at major ports and signaling ongoing regulatory challenges for Nvidia’s China business. (Financial Times)

Valuation Changes

  • Consensus Analyst Price Target has risen slightly from $213.99 to $218.51. This reflects a modest increase in fair value estimates for NVIDIA shares.
  • Discount Rate has fallen marginally from 10.09% to 10.05%. This indicates a slightly lower implied risk in the valuation model.
  • Revenue Growth projection has increased from 26.86% to 27.08%. This suggests improved expectations for top-line expansion.
  • Net Profit Margin estimate has declined modestly from 55.72% to 54.16%. This points to slightly lower near-term profit expectations.
  • Future P/E has risen from 36.06x to 37.65x. This shows an increased valuation multiple assigned to anticipated future earnings.

Key Takeaways

  • Surging AI adoption and ongoing infrastructure digitization are fueling sustained, diversified demand and multi-year top-line growth for NVIDIA.
  • Continuous platform innovation and expanding full-stack offerings deepen customer reliance, strengthen margins, and secure long-term pricing power.
  • Geopolitical risks, customer vertical integration, supply chain fragility, rising data center constraints, and escalating costs threaten NVIDIA's growth, margins, and long-term market dominance.

Catalysts

About NVIDIA
    A computing infrastructure company, provides graphics and compute and networking solutions in the United States, Singapore, Taiwan, China, Hong Kong, and internationally.
What are the underlying business or industry changes driving this perspective?
  • Widespread, accelerating adoption of advanced AI (especially reasoning/agentic AI) is driving orders-of-magnitude increases in compute needs for training and inference, powering massive growth in the addressable data center and AI infrastructure market-this supports multi-year, compounding revenue expansion and strong visibility for top-line growth.
  • NVIDIA's continuous innovation and rapid execution-launching the Blackwell platform, seamless transition to GB300, and upcoming Rubin platform on an annual cadence-sustain technology leadership and premium pricing, reinforcing margin strength and supporting expanding earnings per share over time.
  • The company is capturing a growing share of the expanding value chain by deploying full-stack AI infrastructure (compute, networking, systems, and software ecosystems including CUDA and TensorRT), deepening customer lock-in, boosting recurring software revenues, and supporting high gross margins.
  • Structural supply/demand imbalances, surging AI CapEx spend from hyperscalers and sovereign entities globally, and persistent digitization across automotive, healthcare, manufacturing, and other sectors drive sustained, broad-based demand for NVIDIA solutions-translating into recurring, diversified revenue streams and reduced cyclicality in results.
  • Adoption of more energy-efficient, high-performance architectures (Blackwell, Rubin) and advanced networking (NVLink, Spectrum-X) enables customers to maximize output per dollar and per watt, directly translating into increased customer revenue, positioning NVIDIA as the solution of choice amid industry power and infrastructure constraints-supporting both revenue growth and superior net margins.

NVIDIA Earnings and Revenue Growth

NVIDIA Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?
  • Analysts are assuming NVIDIA's revenue will grow by 26.8% annually over the next 3 years.
  • Analysts assume that profit margins will increase from 52.4% today to 55.7% in 3 years time.
  • Analysts expect earnings to reach $187.9 billion (and earnings per share of $7.94) by about September 2028, up from $86.6 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $158.0 billion.
  • In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 34.6x on those 2028 earnings, down from 47.9x today. This future PE is greater than the current PE for the US Semiconductor industry at 33.5x.
  • Analysts expect the number of shares outstanding to decline by 0.94% per year for the next 3 years.
  • To value all of this in today's terms, we will use a discount rate of 9.97%, as per the Simply Wall St company report.

NVIDIA Future Earnings Per Share Growth

NVIDIA Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?
  • Ongoing and intensifying US-China geopolitical tensions and export controls, including the uncertainty around licensing for H20 and Blackwell architectures in China, risk cutting NVIDIA off from what management estimates could be a $50 billion and rapidly growing annual opportunity, directly threatening future revenue growth and total addressable market.
  • The rising trend of hyperscale and large enterprise customers developing their own ASICs or vertically integrating custom silicon (with public mentions of Broadcom and major cloud providers accelerating ASIC efforts) could lead to erosion of NVIDIA's data center market share, exerting sustained long-term pressure on both revenues and gross margins.
  • Structural dependencies on TSMC and advanced semiconductor manufacturing-highlighted by upcoming product ramps (e.g., Rubin platform)-mean persistent supply chain fragility and global fab constraints could limit NVIDIA's ability to meet accelerating demand or increase costs (notably with substantial inventory increases), negatively impacting margins and earnings visibility.
  • The accelerating growth in energy and infrastructure requirements for data centers, coupled with increasing global power constraints and regulatory scrutiny over AI and data usage, could limit the practical scale and profitability of large AI factory buildouts-potentially capping long-term revenue growth if energy or regulatory bottlenecks hinder customer investments.
  • Aggressive annual product cadence and escalating operating expenses (driven by investments in new platforms and rising compensation costs) risk margin compression and delayed earnings leverage, especially if innovation cycles slow or new product adoptions (e.g., with Rubin) fail to sustain the current breakneck pace of demand expansion.

Valuation

How have all the factors above been brought together to estimate a fair value?
  • The analysts have a consensus price target of $207.015 for NVIDIA based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $270.0, and the most bearish reporting a price target of just $100.0.
  • In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $337.2 billion, earnings will come to $187.9 billion, and it would be trading on a PE ratio of 34.6x, assuming you use a discount rate of 10.0%.
  • Given the current share price of $170.76, the analyst price target of $207.01 is 17.5% higher.
  • We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

How well do narratives help inform your perspective?

Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Read more narratives

US$104
FV
73.3% overvalued intrinsic discount
13.00%
Revenue growth p.a.
10users have liked this narrative
4users have commented on this narrative
22users have followed this narrative
US$170.26
FV
5.9% overvalued intrinsic discount
25.00%
Revenue growth p.a.
34users have liked this narrative
12users have commented on this narrative
193users have followed this narrative