Before NVIDIA's earnings report, Citigroup shouted: Buy! AI demand far exceeds supply, the bubble theory does not hold water
Citi expects NVIDIA's upcoming financial report on November 19 to show a strong performance with "revenue exceeding expectations and guidance being raised," maintaining a "Buy" rating and raising the target price to $220. It believes that the current constraints on NVIDIA's growth are not due to weak AI demand, but rather supply chain bottlenecks such as CoWoS packaging, and the theory of an AI bubble is unfounded
As the investment frenzy in the field of artificial intelligence (AI) sparks intense debates in the market about a potential bubble, Citigroup has cast a crucial vote of confidence for NVIDIA.
According to Wind Trading Desk, Citigroup released a research report on November 10, maintaining a "Buy" rating on NVIDIA stock and raising the target price from $210 to $220. More notably, Citigroup has initiated a "30-day short-term bullish" outlook on the stock, betting on a strong performance in its upcoming earnings report, set to be announced on November 19, which is expected to "beat and raise" revenue expectations and guidance.
This report directly addresses investors' concerns about the "hype" surrounding AI capital expenditures. Analysts Atif Malik and Papa Sylla pointed out in the report that despite doubts about the sources of funding for AI investments, a more fundamental fact is that due to limited advanced packaging (CoWoS) capacity, the supply of AI chips will continue to fall short of demand until 2026.
Citigroup suggests that NVIDIA's stock price remains attractive at current levels. The report states that NVIDIA's current price-to-earnings ratio is about 28 times, compared to 38 times for AI peer Broadcom and 37 times for AMD, indicating a more favorable valuation.
Are Earnings Set to Exceed Expectations?
Citigroup expects NVIDIA's upcoming earnings to easily surpass Wall Street's general expectations. The report predicts that the company's sales for the quarter ending in October will reach $57 billion, higher than the market average expectation of about $55 billion.
Looking ahead, Citigroup anticipates that NVIDIA's sales guidance for the January quarter will reach $62 billion, also above the market expectation of about $61 billion.
The report notes that this optimistic forecast is backed by the strong shipment momentum of NVIDIA's Blackwell architecture GPUs. Citigroup analysts believe that the information revealed at the GTC Washington conference about the shipment of 6 million GPUs is a strong signal that its performance for the October and January quarters may exceed expectations.
In the report, Citigroup states that its model assumes NVIDIA's data center sales will grow sequentially by 24% and 12% in the October and January quarters, respectively, while the market expectations are 19% and 15%.
AI Bubble Theory Disputed
In response to the increasingly vocal "AI bubble" rhetoric in the market, Citigroup has put forward a completely opposite viewpoint. The core argument of the report is that the main contradiction in the current AI chip market is supply not meeting demand, rather than insufficient demand.
"Despite concerns surrounding the debt and cyclical financing mix of the AI capital expenditure bubble, we fundamentally see that due to CoWoS capacity constraints, AI supply will be below demand until 2026, and may only catch up at some point in 2027."
The report states. This judgment implies that the strong demand is real and not a product of speculative hypeTo further substantiate the strong demand side, Citigroup also pointed out that the cloud revenue of large cloud service providers (hyperscalers) is expected to see a turning point starting in 2025, with continued accelerated growth anticipated in 2026, primarily driven by the proliferation of enterprise-level AI applications.
Target Price Raised to $220
Based on strong confidence in NVIDIA's growth prospects, Citigroup not only raised its target price but also comprehensively upgraded its financial forecasts for the future. The new target price of $220 is based on a projected earnings per share (EPS) of $7.24 for NVIDIA in the 2026 calendar year, applying a price-to-earnings ratio of 30 times.
The report indicates that Citigroup has raised its EPS forecasts for NVIDIA for the fiscal years 2026, 2027, and 2028 by 2%, 7%, and 8% respectively, to better align with the bank's revised global AI capital expenditure model. Notably, Citigroup continues to assume zero sales from Chinese data centers in its model, meaning that any policy easing could provide additional upside potential.
Is the AI Chip Market Far from Its Peak?
Citigroup's bullish outlook is not limited to NVIDIA itself but extends to the entire AI semiconductor market. The report significantly raised its forecasts for the future market size, believing that the wave of AI has not yet reached its peak.
According to Citigroup's latest model, the total addressable market (TAM) for the global data center semiconductor market is expected to reach $654 billion by 2028, which is 16% higher than the previous forecast of $563 billion. The report explains that the main reason for the upward revision is "demand from key AI players like OpenAI exceeding expectations."
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