The Street is awash with AI buzz right now and anything AI-related is getting its 15 minutes of fame. The thing is, for those that have been following developments in the space, AI has not suddenly popped out of nowhere.
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In fact, as deep learning activity was expanding past vision applications into large language transformers, Morgan Stanley analyst Joseph Moore has been touting Nvidia’s (NASDAQ:NVDA) AI credentials since 2018.
“At that time,” says the 5-star analyst, “we wrote that expectations for GPU technology to become a key enabler of machine learning training, and then inference workloads as well, was the reason to stay enthused about the stock despite remaining expensive on near-term numbers and cyclicality in the consumer-facing gaming business.”
That said, Moore thinks that with AI now at the fore, and even though the long-term opportunity is “significant,” in Nvidia’s case, the estimates being thrown around the opportunity – particularly the revenue from ChatGPT inference – are too high.
Moore reckons GPT 5 is presently being trained on 25,000 GPUs – amounting to roughly $225 million of NVIDIA hardware – and the inference costs are probably “much lower” than some of the numbers being touted. Moreover, says Moore, lowering inference costs will be crucial in “resolving the ‘cost of search’ debate from cloud titans.”
Having said that, Moore stresses he is not trying to be a “curmudgeon” on the opportunity, believing the growing enthusiasm for large language models is a “very important development for the longer term prospects of deep learning models for natural language.”
In fact, Moore says NVIDIA remains the “best investment on this theme, and it isn’t close.”
However, there’s a caveat. “Valuation is more than 2x anything else in our coverage, so the debate is around that, but we would not debate the importance of this to fundamental growth the next couple of years,” the analyst summed up.
Accordingly, Moore rates NVDA shares at Equal-weight (i.e., Neutral), while his $175 price target suggests the shares will be changing hands for ~20% discount a year from now. (To watch Moore’s track record, click here)
Turning now to the rest of the Street, investors are presented with a conundrum. On the one hand, based on 22 Buys, 5 Holds and 1 Sell, the NVDA stock has a Strong Buy consensus rating. However, the analysts expect shares to stay range-bound for the foreseeable future as indicated by the $209.19 average price target. It will be interesting to see whether the analysts downgrade their ratings or lift price targets over the coming months. (See NVDA stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
