Nvidia Stock Falls. Why This Analyst Backs a Near 40% Gain from Here.

Nvidia chips are the favored choice for training artificial-intelligence models. (Courtesy NVIDIA)

Key Points

About This Summary

• Barclays analysts anticipate Nvidia will be the primary beneficiary of over $2 trillion in announced AI infrastructure spending.
• Analyst Tom O’Malley raised Nvidia’s target price to $240 from $200, indicating a 36% potential rise from current levels.
• The new target price is based on a 35-times price-to-earnings multiple, up from a 29-times multiple previously.

Nvidia stock was down in the Thursday premarket but a series of huge commitments to artificial-intelligence spending has Barclays analysts looking for strong gains in future.

Nvidia shares were down 0.3% at $176.38 in premarket trading. The stock fell 0.8% on Wednesday and has largely flatlined over the past month despite technology companies signaling massive AI investments.

Barclays analyst Tom O’Malley expects Nvidia to eventually be the principal beneficiary of more than $2 trillion in announced spending on AI infrastructure. Within that, he forecasts around $1.5 trillion will go on compute-and-networking capabilities—where Nvidia is the market leader—and it will involve the purchase of nearly 19 million graphics-processing units.

“We see this [AI spending] largely flowing into the Nvidia P&L [profit-and-loss] over the next 5+ years, moving numbers materially higher and making this the most attractive name in our space,” O’Malley wrote.

He raised his target price on the stock to $240 from $200 in a research note on Thursday, indicating a 36% rise from current levels, while keeping an Overweight rating on the stock.

The new target price is based on a price-to-earnings multiple of 35 times the analyst’s forecast for Nvidia’s earnings per share in 202, up from a 29-times multiple previously.

“We raise our multiple to reflect potential upside from continued AI momentum and DC [data center] builds,” O’Malley wrote.

Among other chip makers, Advanced Micro Devices was down 0.7% and Broadcom was falling 0.2% in premarket trading.

Write to Adam Clark at adam.clark@barrons.com