The brutal sell-off in AI chip stock Nvidia offers investors an attractive entry point, Goldman Sachs argued on Monday.
Founder and CEO Jensen Huang has seen his company lose 17% of its market cap since issuing muted third-quarter guidance that sparked concerns its rapid earnings growth may not be sustainable. Only a handful of companies are currently fueling its booming AI chip business, with just four customers comprising nearly half of all Nvidia’s revenue.
“Demand for accelerated computing continues to be really strong,” he said on Monday, reaffirming his ‘buy’ recommendation on the stock and arguing the stock was oversold. “You are seeing a broadening in the demand portfolio into enterprise, even into sovereign states.”
Based on Hari’s estimates for Nvidia’s 2025 profits, Nvidia’s price-to-earnings multiple is in the low 20s thanks to the sharp pull-back over the past couple of weeks. By comparison, Tesla trades at 77 times next year’s consensus earnings estimates.
Custom silicon the latest trend among chip-starved Nvidia customers
Nvidia has driven this year’s gains in the S&P 500 index, but lately it has become a victim of its own success.
A combination of production bottlenecks and a lack of meaningful competition means customers are waiting to be allocated supply of Nvidia’s Hopper AI training chips. Those that are able to actually get their hands on this prized resource are paying through the nose, causing profit margins at Nvidia to balloon.
Unhappy with the lack of choice, tech companies—including Amazon and Tesla—are developing their own custom silicon rather than depending entirely on Nvidia. These proprietary chips can be fabricated at specialized foundries like Taiwan Semiconductor Manufacturing Company (TSMC), bypassing Nvidia entirely.
Hari acknowledged barriers are dropping when it came to the make-or-buy question, but argued the threat is overblown.
For one, Nvidia H100s command a 90% share of the AI chip market versus rivals like AMD’s MI300 series, so no one comes close to its technology. Those customers that are in the process of developing custom silicon are primarily interested in solving compute tasks unique to their businesses, Hari explained.
