After meeting with Nvidia (NVDA) leadership, closely watched BofA semiconductor analyst Vivek Arya has just one important takeaway.
Nvidia's goal is utter AI dominance.
"We caught up with NVDA senior management earlier today following their latest $105 billion OpenAI (OPAI.PVT) commitments. The strategic intent is clear: NVDA is committed to the transformational nature of AI and to securing every input - chip supply, land, power, shell - especially for disruptive, non-investment-grade customers such as frontier labs and neo-clouds," Arya said in a new note on Tuesday. "Today's conditions make this worthwhile: solid GPU rental rates, compute scarcity, and NVDA's industry-leading free cash flow generation. It also diversifies NVDA beyond public hyperscalers now building competitive custom chips."
The chip business has made its fair share of news ahead of its Aug. 26 earnings report.
Earlier this month, Nvidia partnered with financial powerhouses—including Apollo Global Management (APO), BlackRock (BLK), Blackstone (BX), Brookfield (BN), Goldman Sachs (GS), and KKR (KKR) to establish independent compute financing platforms. (Disclosure: Yahoo is a portfolio company of funds managed by affiliates of Apollo Global Management.)
The consortium is looking to deploy $500 billion in private capital to fund AI data centers and "AI factories," transforming Nvidia hardware into an investable asset class for institutional capital.
Nvidia CEO Jensen Huang quickly followed this up with a deal to provide up to $105 billion in credit support and residual value guarantees for SB Energy's 8-gigawatt PORTS Technology Campus in Pike County, Ohio. The massive facility will be leased by OpenAI (OPAI.PVT) and will run exclusively on Nvidia AI infrastructure.
"NVDA's ecosystem investments, especially into disruptive frontier-labs and neoclouds, are critical to accelerating the AI cycle, though they risk lower earnings quality and a depressed trading multiple," Arya explained. "The most forceful counter, in our view, may be to boost investor cash returns, dedicating a greater share of free cash flow to buybacks given NVDA's 50% allocation sits well below peers at 75-100%."
He reiterated a Buy rating on Nvidia stock with a $350 price target, which puts Arya above the average analyst target at $302, per Yahoo Finance AlphaSpace data.
If there is any reason to proceed with caution ahead of Nvidia's earnings, it's that the market is positioned for the company to post something great and for Huang to sound super bullish on the earnings call.