Nvidia (NASDAQ:NVDA) shares have been on an absolute tear in 2023, recording year-to-date gains of 223%. The investment thesis is crystal clear: driven by insatiable demand for its best-in-class AI chips, Nvidia has consistently delivered beat-and-raise reports, establishing itself as a dominant player in the AI chip industry.
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But if you think that maybe it’s time to consider different investing avenues after delivering such incredible returns, then Piper Sandler analyst Harsh Kumar would like a word.
In fact, Kumar believes the investment case for Nvidia remains so strong that it deserves to be his “top large-cap pick.” And it takes that accolade at the expense of the one company Kumar thinks offers it some semblance of competition.
“We are making Nvidia our top large-cap pick (previously AMD) for the following reasons,” says the 5-star analyst. “1) Valuation is now substantially more compelling than AMD, 2) NVDA provides the full stack of compute that allows for strong efficiencies and significant competitive advantages at the system level, 3) we think that software licenses can be a significant portion of overall revenue going forward and increase NVDA’s TAM.”
While Kumar thinks AMD is currently the “only legitimate player that can compete” with Nvidia on generative AI hardware, there are too many factors combining to push Nvidia ahead.
Kumar reckons more than 85% of AI models right now are trained on their GPUs, while Nvidia’s AI dominance makes it the ideal choice to over oversee the infrastructure software. That, in turn, “increases the stickiness of customers.” Moreover, considering the speed of adoption taking place for gen AI, Kumar makes the case that at this point “no other company has the software stack to compete.”
Additionally, via a strong backlog along with “demand tailwinds,” Kumar believes there’s a clear path ahead into FY25. Furthermore, addressing worries about the impact from the restrictions placed on selling high-end chips to China, by the April quarter and once fully ramped, the analyst sees a new China chip contributing to revenues in the range of $2.5-$3 billion per quarter.
To this end, Kumar reiterated an Overweight (i.e., Buy) rating, backed by a $620 price target. Should the figure be met, investors will be pocketing returns of ~35% a year from now. (To watch Kumar’s track record, click here)
Looking at the ratings breakdown, Kumar’s thesis gets plenty of support amongst his colleagues. While 3 remain on the sidelines for now, they are thoroughly outnumbered by 31 Buys, all culminating in a Strong Buy consensus view. At $661, the average target represents one-year returns of ~43% from current levels. (See Nvidia stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
