Loop Capital initiated research coverage of Nvidia (NASDAQ:NVDA) with a Buy rating and a $1,200 price target, marking a new Street high.
“Initiating Buy and $1200 PT (63% appreciation) as we believe not only is there material upside to Street estimates in CY2024/FY2025 & CY2025/FY2026 but that we are at the front end of a 3 - 5 year GPU compute & Gen AI foundational build across Hyperscale,” analysts at Loop Capital wrote in a note.
NVDA rose 1.8% in premarket trading Friday.
The analysts acknowledge the emergence of new silicon providers, both private entities and major players like AMD and INTC, along with the fact that Hyperscale specific internal silicon solutions are expected to launch in the coming years.
However, they suggest that Nvidia’s biggest customers are expected to take “everything NVDA can give them in 2024 and 2025.”
Loop Capital says its findings indicate that Hyperscalers are transitioning towards utilizing 50% to 60% GPU compute, a significant jump from the current 10%.
It also highlighted that the key takeaway from its Hyperscale conversations is that generative AI is propelling the shift towards GPU-based computing.
This trend confirms Nvidia CEO Jensen Huang's early prediction about the essential move to GPU computing to meet the demands of advanced AI applications.
“This harkens us back to hues of the internet buildout (Figure 9) where adoption/buildout went up 5x (up to 60% saturation) from 1995 – 2001,” the analysts said.
Moreover, the analysts also pointed out a significant uptick in IT spending among Fortune 1000 companies in 2024, with generative AI also acting as the primary driver.
Expected growth in IT spending is forecasted at 5-8% in 2024, compared to 5% in 2023 and the usual 3-5%, with a notable rise in infrastructure spending from the typical 30% to 45%.
“This is coming from F1000 realization that they need to move more data into the Cloud to (say 60% - 80% vs prior plans of 30% - 40%... and currently at 15% - 20%) not only take advantage of Gen AI but to be able to run the key applications of the future,” they said.