Why Nvidia's AI Chip Lead Is Sustainable

Nvidia's (NVDA) lead in the artificial intelligence market is sustainable for years to come, a Wall Street investment bank says. Nvidia stock rose in early trading Thursday.

In a report Wednesday, Loop Capital Markets analysts Ananda Baruah and John Donovan said Nvidia's "longevity potential" is underappreciated.

That assessment comes as some analysts fret about the competitive threat from custom chips designed by hyperscale cloud service providers working with fabless chipmakers such as Broadcom (AVGO) and Marvell Technology.

Meanwhile, Nvidia executives believe they are sitting on top of a more than $2 trillion revenue opportunity in accelerated computing, generative AI and inference and that "they can hold a material leadership position in each," Loop Capital said.

Baruah and Donovan compared Nvidia's impact on computing to musical group Nirvana, which had a "sea-change impact" on the music industry and sustainable success.

The analysts rate Nvidia stock as buy with a price target of 175. In premarket trading on the stock market today, Nvidia stock rose 1.6% to 136.47.

Key to Nvidia's AI leadership is its expertise in the total technology stack. That includes semiconductors, systems and software, Loop Capital said. That stack along with its installed base of users create a competitive moat, the firm said.

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"We believe it's underappreciated the degree to which Nvidia has already created critical 'up the stack' capabilities that could be positioning them for moat-like characteristics moving forward in both training and inference," Baruah and Donovan wrote.

The first wave of the generative AI computing trend was training and the next wave is inference. AI training is the process of teaching an AI model to recognize patterns and make predictions, while AI inference is when the model uses that training to make predictions on new data.

"Nvidia may already have a lock on inferencing and the game has just started," the analysts said. "Nvidia is already positioned as the 'Gen AI Inference Platform Of Choice' … and it isn't yet widely recognized."

That position is evident in the 5 million developers in its AI ecosystem, thousands of developed applications, and a presence with every relevant cloud provider and hardware supplier, Baruah and Donovan said.

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