Nvidia Thesis ($200 PT by Dec-2025, 53% Gross, 38% IRR)
P.S.: Not financial advice, just my quick read-through of fundamentals
Nvidia is the world’s largest chip company, spearheading the global AI revolution. It holds a dominant 98% market share in Data Center GPUs.
Last fiscal year, Nvidia generated $60 billion in revenue, with ~80% coming from its Data Center segment. This year, revenue is expected to double to $120B, with ~$105B coming from Data Centers.
I believe there’s a ~50% upside in the stock by the end of 2025, translating to a 38% IRR. The current street estimates for Nvidia’s Data Center revenue in 2025 and 2026 stand at $150B and $170B, respectively. However, I find these projections conservative. My analysis points to $200B in 2026 Data Center revenue, translating to ~$5 EPS in CY2026. Applying a 40x NTM PE (Nvidia’s typical trading multiple) yields a $200 price target by the end of 2025.
Key Reasons for My Bullish Thesis:
1. We are in the early stages of the AI Arms Race.
* Hyperscalers have spent $200B on capex over the last two years, with plans to spend $700B over the next 2.5 years—much of it allocated to AI and GPUs.
* Microsoft currently operates 192 data centers and plans to scale to 900 by 2028. If Microsoft is this aggressive, other hyperscalers are likely to pursue similar aggressive expansion plans.
* Large Language Model (LLM) capacity is doubling every six months. For instance, Claude 3’s context window (now 200K tokens) is projected to increase to 1 million tokens by next year. Such improvements necessitate hyper-demand growth for powerful GPUs that can serve both training and inferencing. There isn't any chip, apart from NVIDIA's Blackwell, that can meet this demand.
2. Supply Chain Insights: Have been looking into supply chain data, and all data points reflect
* TSMC’s CoWoS production, crucial for Nvidia’s Blackwell architecture, is set to grow from 15,000 units/month in 2023 to 40,000 by late 2024—a ~3x increase.
* Applied Materials has revised its HBM packaging revenue forecast from 4x to 6x growth this year.
* SK Hynix and Samsung are reallocating 20% of their DRAM production to HBM3e.
* AMD’s CEO estimates the AI chip market will be worth $400 billion by 2027; Intel's CEO puts the number at $1 trillion by 2030
3. Blackwell Product Roadmap:
* Nvidia is transitioning from a 2-year to a 1-year product cycle. The B100 and GB200 chips will ship later this year, with the B200 expected in early 2025. This is one of the most aggressive product roadmaps in industry's history. In my estimate, NVIDIA could sell 60,000 units of GB200 systems with $2M per unit price, driving $120B in annual revenue in 2025 from GB200 alone.
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