Technology analysts predict that Nvidia, the leader in artificial intelligence chips, will suffer from an embarrassment of riches in the next few years, and shareholders will be rewarded.
Ben Reitzes, managing director and head of technology research at Melius Research, told CNBC on Wednesday that Jensen Huang’s Nvidia has mastered an “all-end” approach to hardware and software, giving it a key advantage in the field of artificial intelligence.
“What they’ve done is built a computing language and an ecosystem that allows you to monetize artificial intelligence, and they’re clearly killing it,” he said.
Reitzes has a $160 price target on Nvidia stock, which implies a 30% upside from Friday’s closing price. Despite the ongoing sell-off that began earlier this month, shares have soared 150% so far this year after more than tripling in 2023. He added that Nvidia has the most upside among the Magnificent 7 stocks he watches.
Another big advantage Nvidia has over its competitors is its pace of innovating new products every year, Retzis said. This means developers and customers will know where Nvidia is heading and can budget for upgrades accordingly.
“They’re going 150 miles an hour and everyone else is going 100 miles an hour. It’s going to be hard to catch up with those guys,” he said.
Given Nvidia’s dominance in the booming field of artificial intelligence, Melius Research expects the company to generate $270 billion in cash over the next three years, which could set the stage for huge shareholder returns.
Reitz said management may not be eager to tout the possibility of stock buybacks, which are typically associated with older companies. But to him, it was obvious.
“Nobody’s talking about it, and when you do the model we did, there’s an outpouring of cash,” he said. “And there’s nothing they can do. This government won’t let them buy anything big. They can’t invest that much in R&D. It’s impossible. So we have to get it as shareholders.
To be sure, Nvidia has been returning capital to shareholders. In August, it announced a $25 billion buyback program. Last month, Nvidia increased its quarterly cash dividend by 150%, from $0.04 per share to $0.10 per share, equivalent to $0.01 per share post-split.
Nvidia declined to comment on the possibility of more share buybacks.
Retzis is quick to point out that any future buybacks do not mean Nvidia has stopped growing. “It’s not an insult to buy back stock if you have nothing else to do.”
Nvidia’s recent financial data shows that its ability to generate cash is accelerating. In the fiscal year ended in January, Nvidia’s net cash provided by operating activities surged to $28.1 billion from $5.6 billion the previous year.
Net cash provided by operating activities was $15.3 billion in the first quarter ended in April, more than half of last year’s total.
Meanwhile, Huang told investors last week that Nvidia would remain the gold standard for AI training chips amid concerns that rivals might steal his market share.
The launch of Nvidia’s Blackwell systems later this year will only solidify that lead, he told the company’s annual shareholder meeting on Wednesday.
Huang Renxun said: “The Blackwell architecture platform may become the most successful product in our history and even in the entire computer history.”
