Nvidia's stock claws back as this analyst tries to settle a key debate

MW Nvidia's stock claws back as this analyst tries to settle a key debate

By Emily Bary

Wall Street has been worried about stiffer competition against Nvidia's GPUs, but Citi sees more momentum ahead for Nvidia

Should investors be worried about Nvidia Corp.'s dominant business of selling graphics processing units?

Not so fast, according to Citi Research analyst Atif Malik. Wall Street has been jittery about the outlook for GPUs in light of strong forecasts from Marvell Technology Inc. $(MRVL)$ and Broadcom Inc. $(AVGO)$, both of which sell application-specific integrated circuits that are also useful for artificial intelligence. Some have been worried that the cost advantages of ASICs could eat into Nvidia's $(NVDA)$ market share.

Opinion: Broadcom and Marvell are a growing threat to Nvidia as AI-chip needs evolve

But Malik and his team "expect both to coexist," noting the pluses and minuses of the two. Custom ASICs cost perhaps $5,000, versus $20,000 to $30,000 for GPUs, although GPUs have far more high-bandwidth memory and the ability to be reprogrammed to different workloads. That last point is "the biggest advantage for GPUs/Nvidia," with the company's CUDA software tools helping to make that happen.

Malik sees a vast market for AI accelerators, which could amount to $380 billion by 2028. Within that, ASICs could command 35% or more of the market by units, but perhaps 25% by sales, given the lower average selling prices of those chips.

In any case, he sees a healthy outlook for GPUs. "Our recent supply-chain discussions indicate Nvidia's CoWoS foundry capacity allocation is expected to grow to 60% in 2025 from 56% in 2024, pointing to continued GPU momentum in 2025," he wrote. CoWoS refers to "chip on wafer on substrate," a type of packaging technology.

Fears of an ASIC ascension weighed on Nvidia's stock in recent days, pulling the stock into correction territory, but it's clawing back on Wednesday, up 2.5% in premarket action.

Elsewhere, Cantor Fitzgerald's C.J. Muse cheered the stock as a top pick for 2025.

"We've highlighted ad nauseam our love for [Nvidia], and we would expect the name to lead the [PHLX Semiconductor Index SOX] higher in 2025 as it has done for 4 of the past 5 years (2022 pressured when [Nvidia] was a crypto company)," Muse wrote.

He noted that the company "is coming into its strongest product cycle ever in Blackwell which will ramp throughout 2025 (followed quickly by Rubin in 2026), with a setup for continued strength in hyperscale spending and ongoing ramp of enterprise and sovereign AI infrastructure builds."

And as for the "key debate" on AI accelerators, Muse doesn't seem worried about Nvidia's positioning. "Scaling is alive and well, with new vectors of scaling arising across post-training and inference, which will drive the continued need for [Nvidia] offerings to support compute requirements," he said.

See also: Nvidia's stock may have lost its luster, but the rest of tech can still shine

-Emily Bary

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December 18, 2024 09:22 ET (14:22 GMT)

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