Nvidia’s Stock Could Have a Pathway to $600, Citi Says

The $600 target marks Citi’s bull case, while analyst lifts base-case target to $520

Citi likes Nvidia’s potential to accelerate year-over-year growth in data-center sales in 2023.

A Citi Research analyst boosted his price target on shares of Nvidia Corp. to $520 from $420 Monday, and he sees a pathway to $600 in a more bullish scenario.

“To us, it is clear the market for [artificial-intelligence] accelerators is bound to grow at a blistering pace,” Citi’s Atif Malik wrote, and Nvidia NVDA, -1.10% looks poised to continue smoking the competition as it dominates this market, in his view.

Malik thinks Nvidia will boast “a substantial advantage in AI performance versus AMD going forward,” helping the company maintain about a 90% share of the market for AI accelerators with its graphics-processing units.

Meta Platforms Inc.’s META, -1.45% PyTorch 2.0 machine-learning framework could help Advanced Micro Devices Inc. AMD, +0.02% narrow the gap between its software and Nvidia’s, according to Malik, but he still thinks Nvidia’s “years of cumulative experience in GPU optimization” through CUDA, its software framework, and cuDNN, a neural-network library, “may take multiple generations of competitor GPUs and software improvements to match.”

While Nvidia shares have catapulted more than 200% so far this year, Malik still views them as attractive. He cheered a “favorable risk-reward” balance as the company has the potential to accelerate year-over-year growth in data-center sales through the balance of the year, even as factors like China headwinds, macroeconomic effects on gaming demand and overall competition present downside risk.

Malik’s base-case scenario, with his $520 price target, is based on a 35-times price-to-earnings ratio and assumes that AI workloads double this year thanks to generative AI, and that gross domestic product contracts in 2023 before growing modestly in 2024.

His bull-case scenario of $600 comes with a 40-times price-to-earnings ratio and assumes that sales grow faster than expected due to generative AI while macroeconomic conditions hold up well enough to not slow down the gaming business in 2023 and 2024.

Shares of Nvidia closed higher 2.2% at $464.61 on Monday.