With the rise of artificial intelligence, semiconductor stalwart Nvidia (NASDAQ:NVDA) has garnered plenty of attention. Its graphics processing units (GPUs) undergird the innovation through accelerated processing capabilities. In turn, a Wall Street research firm labeled NVDA stock a “no brainer.” Still, at least one fundamental blind spot exists that investors should monitor.
According to Melius Research analyst Ben Reitzes, NVDA stock could benefit from a “gold rush” in demand for AI-centered hardware. Tech behemoths such as Microsoft (NASDAQ:MSFT), Meta Platforms (NASDAQ:META) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) have disclosed big expenditure intentions.
“The big clouds are the foundation for demand for Nvidia’s GPUs — and they are all spending ~20% more on chips than we thought over the next few years,” Reitzes mentioned in a research note on Monday. Further, he believes that enterprises will likely “spend like crazy.” By logical deduction, Nvidia should be able to “hopefully, monetize like crazy.”
As a result, Reitzes lifted his price target on NVDA stock to $1,125. Previously, the expert had a $1,000 target on the tech juggernaut.
NVDA Stock Surges on Booming Tech, But That’s Also the Problem
To emphasize his bullishness, Reitzes pointed out that digital applications require ever-increasing bandwidth. “Data-intensive video is now becoming a standard input for training — and creating video needs a ton of GPUs for inferencing,” he stated.
In addition, NVDA stock could rise on “a once-in-a-generation shift of market cap into picks and shovels from application software and other AI-threatened spaces.” Further, it’s a sensible assumption. Grand View Research points out that by 2030, the global AI market could be worth $1.81 trillion. If so, such expansion would represent a compound annual growth rate of 37.3%.
However, it’s also important to point out AI’s consumptive nature. More capabilities mean more energy usage, and that’s a possible blind spot for NVDA stock.
According to the Office of Energy Efficiency & Renewable Energy, data centers represent “one of the most energy-intensive building types, consuming 10 to 50 times the energy per floor space of a typical commercial office building.” In fairness, several approaches exist to mitigate this consumption. Nevertheless, The Week reported that the U.S. power grid may be “reaching critical levels due to emerging technologies.”
In other words, while NVDA stock can outrun market fundamentals, the power grid is a different story.
Why It Matters
For now, NVDA stock enjoys overwhelming consensus as a strong buy opportunity. Among 41 expert voices, 39 of them rate shares a buy. The remaining two are holds. However, the average price target is $1,004.92, which implies a relatively modest 15% upside potential.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
