Investors can expect a huge reveal on Nvidia's upcoming earnings call that could silence AI critics, Goldman Sachs says

• Nvidia plans to reveal examples of how its end customers make money on AI chips, Goldman Sachs says.
• The reveal is set to come in Nvidia's earnings call, and it could silence AI skeptics.

Nvidia is set to silence AI critics when it announces its second-quarter earnings results in late August.

That's according to a Monday note from Goldman Sachs, which details takeaways from a recent meeting with Nvidia's chief financial officer, Colette Kress.

There are growing worries that for all the hundreds of billions of dollars being spent on Nvidia's AI chips, there's little to show from it in the form of profits and revenue for Nvidia's customers.

"End-user companies and their investors will soon look for revenue to justify the $500 billion already spent," Bank of America said in a note earlier this week. "No one denies the computing power. But after one last frenzied rally around the latest chips, investors may come to doubt the near-term economics."

But according to Goldman Sachs, Kress said Nvidia planned to highlight the profits its end users are generating from the growing use of its AI-enabled GPU chips.

"In order to assist investors in appreciating customers' ROI profiles, Ms. Kress noted that, similar to how they shared data from Meta on their most recent earnings call, they intend to provide ROI metrics from customers on its next earnings call as it aims to instill confidence in investors," Goldman Sachs said.

On its latest earnings call, Nvidia said that for every $1 spent on its HGX H200 servers, an API provider serving Meta's Llama 3 tokens could generate $7 in revenue over four years.

Other takeaways from Goldman's conversation with Kress include the expected revenue ramp of Nvidia's next-generation Blackwell GPU chips.

Goldman expects revenue from the Blackwell chip to be limited in Nvidia's third quarter, "followed by a more significant ramp in FY4Q (January) and FY1Q (April)."

"Ms. Kress also stated that inputs such as data center facility space, power, and cooling — all concerns often raised by investors as it pertains to customers' ability to build out large-scale data centers — are unlikely to derail the growth trajectory of the company for the foreseeable future," Goldman Sachs said.

Overall, Goldman Sachs said it was confident Nvidia would deliver a positive earnings surprise leading to positive EPS revisions when it reports results next month.

"We reiterate our Buy rating on NVDA as the meeting reinforced our belief in the sustainability of the ongoing Gen AI spending cycle as well as Nvidia's ability to maintaining its leadership position through consistent and rapid innovation across Compute, Networking and Software," Goldman Sachs said.

The bank reiterated its $135 price target for Nvidia, which represents potential upside of 14% from current levels.