Goldman Sachs is setting the stage for Nvidia stock ahead of earnings

Nvidia (NASDAQ:NVDA) is one of the last major players to release its latest quarterly results. The chip giant is expected to report its third-quarter results on November 20.

Nvidia's rise to one of the world's most valuable companies rests on the strength of its quarterly numbers. But interestingly, Goldman Sachs' Toshiya Hari, an analyst ranked in the top 1% of Street stock experts, says the stock is trading “well below its median P/E multiple over the past three years” compared to his broader coverage universe. Therefore, the 5-star analyst believes the stock is “well positioned to sustain its outperformance.”

This outperformance has resulted in returns of over 200% over the past year, but according to Hari, the true “breakout” quarter is yet to come. However, this will not be the case until the April quarter (FY1Q) when “Blackwell's rise coupled with improving supply-side conditions results in meaningful positive EPS revisions.”

The upcoming October quarter (FY3Q) results won't be bad either, as Hari expects the F4Q guidance and commentary to support his “constructive thesis on the stock”.

This positive thesis is based on the fact that computing demand remains robust. Some of the company's largest customers – Alphabet, Microsoft and Amazon – reported earnings last week, and while the pace of cloud revenue growth varied for each, all three said supply, not demand, “remains a limiting factor.” For example, Microsoft mentioned that Azure revenue growth will pick up in the second half of fiscal 2025 (March and June quarters) as additional capacity becomes available.

Feedback from Nvidia's partners and competitors also illustrates a strong underlying market for AI infrastructure. For example, AMD increased its forecast for the total addressable market (TAM) for AI accelerators from $400 billion by 2027 to $500 billion by 2028.

Hari says the “most common criticism” of his positive investment thesis is that slow AI adoption (or ROI) could reduce spending on AI infrastructure, thereby impacting Nvidia's top and bottom lines. “While we believe Nvidia will ultimately experience a cyclical correction as customers enter a phase of utilization and/or computing capacity optimization,” he continued, “we think there is a likelihood of this happening in the near term.” i.e. 6 -12 months) is limited, especially given the recent increase in the breadth of AI use cases.”

Bottom line, Hari rates NVDA stock a “Buy,” backed by a price target of $150. (To watch Hari’s track record, click here)

The average Street price target is slightly higher at $153.86. Overall, Nvidia is rated a Strong Buy by the analyst consensus based on 39 “Buy” ratings and just 3 “Hold” ratings. (See Nvidia stock forecast)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is for informational purposes only. It is very important to do your own analysis before investing.