DA Davidson: NVIDIA Corporation (NVDA.US) "King" position is difficult to shake. Gross margin is expected to remain high before 2030.

Despite large cloud computing companies actively seeking diversification in AI chip supply, Wall Street analysts believe that NVIDIA Corporation (NVDA.US) is still difficult to shake off its dominant position in the artificial intelligence data center market in the short term, and its high profit margin levels are expected to continue until the end of the decade. DA Davidson's technology research director Gil Luria said in an interview on Friday, that due to the lack of mature alternatives in the AI chip field for large-scale cloud service providers, NVIDIA Corporation currently holds strong bargaining power. "These large cloud service providers actually don't have many choices," Luria said. "Currently, they still almost entirely rely on NVIDIA Corporation's chips, which makes NVIDIA Corporation maintaining a gross profit margin level of over 70% have strong sustainability." In recent years, as generative AI has developed rapidly, large technology companies such as Microsoft Corporation (MSFT.US), Amazon.com, Inc. (AMZN.US), Alphabet Inc. Class C (GOOG.US, GOOGL.US), and Meta (META.US) continue to expand investment in AI data centers, driving NVIDIA Corporation to become the biggest beneficiary of this wave of AI infrastructure development. Although these tech giants are trying to reduce their dependence on NVIDIA Corporation by purchasing custom AI chips from Broadcom Inc. (AVGO.US) and AI accelerator products from Advanced Micro Devices, Inc. (AMD.US), the market generally believes that these alternative solutions are still in the early stages of development. Luria pointed out that whether it is AMD or Broadcom Inc., they have not yet formed a competitive advantage that can challenge NVIDIA Corporation. "Competitors are still in a very early stage of development, and large cloud service providers do not have strong bargaining power in negotiations." Financial data shows that NVIDIA Corporation's latest quarterly revenue increased by 85% to $8.16 billion year-on-year, once again breaking historical records; the adjusted gross margin reached 75%, far higher than most semiconductor companies. Luria maintains a "buy" rating on NVIDIA Corporation and gives a target price of $300. Based on the closing price on Thursday, this target price implies a potential 37% increase in stock price. However, as AI investments continue to expand, some investors are beginning to remain cautious about the short-term growth prospects of large chip companies. Although NVIDIA Corporation's stock price has risen by over 1300% in the past five years and the latest financial results announced on May 20 were better than market expectations, the company's stock price still experienced a correction after the financial report. This reflects that investors' growth expectations for the leading AI companies have reached an extremely high level, and merely exceeding expectations is not enough to drive stock prices continuously higher. A similar situation also occurred with Broadcom Inc. On Thursday, Broadcom Inc.'s stock price recorded its largest single-day decline in over 16 months, as the company's AI chip business revenue outlook did not meet investors' increasingly high expectations. In response, Luria believes that the market reaction was somewhat excessive. "In fact, Broadcom Inc. has delivered a very good report card," he said. "The company's revenue continues to show strong growth, but investors have now been trained to expect higher growth rates." As the AI industry enters the stage of large-scale commercial deployment, market attention on chip companies is shifting from simply high growth to sustainability and profitability. In this context, NVIDIA Corporation, which has a leading technological edge, ecosystem barriers, and economies of scale, is still considered one of the most competitive companies in the AI infrastructure field.