The latest evidence Nvidia's stock is a 'no brainer,' according to this analyst

By Emily Bary

A Melius Research analyst sees more than 25% upside for Nvidia shares as major cloud companies increase their spending outlooks

Nvidia Corp.'s stock continues to be a "no brainer," according to Melius Research analyst Ben Reitzes. Just ask the rest of Big Tech.

Hyperscale cloud providers Microsoft Corp. (MSFT), Meta Platforms Inc. (META) and Alphabet Inc. (GOOG) (GOOGL) offered more evidence of the "gold rush" for artificial-intelligence hardware as they talked up big spending outlooks.

"The big clouds are the foundation for demand for Nvidia's GPUs - and they are all spending 20% more on chips than we thought over the next few years," Reitzes wrote Monday. He sees companies determined to "spend like crazy" so that, down the road, they can "hopefully, monetize like crazy."

In his view, Nvidia (NVDA) is a prime beneficiary of this spending rush. "If a cloud forces customers to use their own chips, they could lose share," Reitzes wrote. Further, Nvidia should remain in a prime spot for the inferencing phase of artificial intelligence, which involves having systems make predictions based on information that is new to them.

Read: Nvidia stands to benefit as Meta spurs an even greater AI spending spree

"Data-intensive video is now becoming a standard input for training - and creating video needs a ton of GPUs for inferencing," he added. "You can't really risk it with Nvidia's competitors."

Nvidia's inferencing position could improve even more once the company officially rolls out its Blackwell lineup later this year. "We believe that its share of inferencing will be higher than expected since its performance is unmatched," Reitzes said. "Also, the big clouds are going to have to spend their share on Nvidia, up to 25% of [capital expenditures] for Microsoft and Meta this year alone."

See also: Nvidia isn't just a chip stock, and could soar 30% when investors realize that

He boosted his price target on Nvidia shares to $1,125 from $1,000 in his latest note, while cheering "a once-in-a-generation shift of market cap into picks and shovels from application software and other AI-threatened spaces."

Investors have to wait until May 22 for Nvidia's earnings, but they could get further signs of Nvidia's potential to capture AI spending dollars when Amazon.com Inc. reports results on Tuesday.

-Emily Bary

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

04-29-24 0942ET

Copyright (c) 2024 Dow Jones & Company, Inc.