Nvidia's controversial financial plays could actually keep the company on top, according to this analysis
Nvidia, led by CEO Jensen Huang, will report its fiscal second-quarter 2027 results on Wednesday.
Investors are treating Nvidia's stock like the company is "losing" the artificial-intelligence game, according to an analyst who thinks that's entirely the wrong approach.
"It is time to close your eyes" and bet big on Nvidia's stock (NVDA), Cantor Fitzgerald's C.J. Muse wrote in a Monday note to clients.
Although Muse isn't sure what the next positive catalyst for Nvidia shares will be, "when this stock starts moving, we think it is going to move very, very fast," he said.
Muse noted that Nvidia's stock looks particularly cheap when valued based on especially bullish estimates for earnings per share of $17 in calendar 2027 and $25 in calendar 2028. Shares are trading at 14x those 2027 estimated figures and 10x bullish 2028 expectations, he noted.
He said his advice to aggressively purchase Nvidia shares is for investors who believe in the company's earnings potential and its ability to capture even more value within the AI ecosystem.
Muse's $350 price target is 67% above current levels. He thinks investors are currently "underweight" the stock, meaning Nvidia is less represented in portfolios than it is in the broader market.
The company has moved beyond just being a chip supplier, Muse said. And he's upbeat on the company's admittedly polarizing practice of "financial engineering" by taking equity stakes in artificial-intelligence companies like OpenAI and Anthropic and making revenue-sharing agreements with neoclouds including CoreWeave (CRWV) and Nebius Group (NBIS).
Those moves are not being appreciated enough by the market, in his view.
This strategy "is becoming increasingly critical and one that we believe will shine as we move further through today's robust AI infrastructure buildout," Muse said.
While Nvidia faces concerns over its dominance in the AI semiconductor market as the major cloud companies increasingly focus on custom chip programs, Muse sees revenue sharing with neoclouds as a "much more resilient" approach given that the company is enabling data-center buildouts that go beyond the main cloud providers.
Nvidia is also expanding its customer base to include more enterprises and sovereign programs, he said. The revenue-sharing tactic also supports the company's push toward offering full AI systems of its racks, networking and other components, Muse added.
Nvidia's equity stakes and revenue-sharing arrangements - along with its plan to raise $500 billion for AI infrastructure with leading financial firms and deals to provide compute for equity in AI startups - have turned its graphics processing units "into a financeable, increasingly fungible asset class," Muse said.
In his view, that has allowed Nvidia to make "itself very difficult to disintermediate" even if loses out to a competitor at any level of the technology stack, "because Nvidia's financing and software are frequently what allowed that hyperscaler's infrastructure to exist in the first place," Muse said.
Nvidia's stock was down 2.5% on Monday morning and headed for its longest losing streak since Sept. 6, 2022, according to Dow Jones Market Data, on track to fall for the seventh session in a row. The chip maker's stock is up about 12% so far this year, compared with a 59% gain for the PHLX Semiconductor Index SOX in the same period.
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Meanwhile, Nvidia is reportedly planning to raise prices for servers of its AI chips, according to Bloomberg. Some of the chip maker's major customers could face a hike of more than 15% depending on the system's chip-generation and memory needs, Bloomberg reported on Saturday. Those increases are expected for shipments next year, according to the publication.
The Wall Street Journal also reported on Saturday that Nvidia is planning to build an open-weight AI model to compete with offerings from Chinese firms such as DeepSeek and Moonshot AI's Kimi K3 through its new $6 billion licensing deal with AI startup Poolside.
The company did not immediately respond to MarketWatch's requests for comment on both reports.
Nvidia is due to post fiscal second-quarter earnings after Wednesday's closing bell.
-Britney Nguyen
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