Nvidia (NASDAQ:NVDA) might see its $100 billion OpenAI deal as old news already, with this week bringing another blockbuster agreement for the ChatGPT maker – this time with Nvidia’s rival, AMD. Still, that earlier deal and other strategic investments by Nvidia have sparked investor debates over how these arrangements are structured, and whether the company’s equity stakes in AI startups could ultimately cycle back to it through GPU sales, a concept some are calling “circular” revenue.
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Based on OpenAI’s public statements about its infrastructure plans – including self-built datacenters using Nvidia GPUs, the Stargate initiative, and contracts with Oracle – Goldman Sachs analyst James Schneider believes it will need to depend more heavily on equity and debt financing, potentially raising as much as $75 billion in 2026. So far, these efforts, such as Oracle’s $18 billion debt raise to back OpenAI, appear to be “gaining strong market traction.” The real test is whether OpenAI can turn these massive investments into profitable growth before funding becomes harder to secure.
But what will this all ultimately mean for Nvidia? Schneider sees the potential “circular revenue” from strategic investments, possibly putting downward pressure on its valuation multiple. Like any strategic investment in a customer that isn’t self-sustaining, the analyst expects investors to pay close attention to that customer’s underlying fundamentals.
“When equity investment comes from a supplier, we believe additional scrutiny is warranted given the ‘circular’ nature of the revenue because of the investor’s dual role as investor and supplier,” the analyst explained.
That said, Schneider views Nvidia’s investments as strategically important in helping cultivate the broader AI ecosystem. In the analyst’s eyes, they make “clear strategic sense” because they both strengthen developer adoption of Nvidia’s CUDA software platform and signal to investors how significant Nvidia believes the market opportunity to be.
Overall, the analyst expects Nvidia’s near-term fundamentals to remain strong. Growth should be driven by both hyperscalers and newer customer segments, with the former group continuing to make up the bulk of revenue. That said, while Schneider stays “bullish on the stock” given the upside potential to current estimates, he’s more cautious on its valuation multiple due to rising long-term risks from non-traditional customers like sovereigns and startups such as OpenAI. “However,” Schneider added positively, “we do not currently see significant risks to the overall investment case on Nvidia as this circular’s revenue represents less than 15% of the total in 2027.”
Accordingly, Schneider assigns NVDA shares a Buy rating, while raising his price target from $200 to $210. At current valuation, he sees a 9% one-year upside for the shares. (To watch Schneider’s track record, click here)
The Street’s average price target is a little higher; at $219.86, the figure makes room for 12-month returns of 14%. Based on a mix of 35 Buys, 2 Holds and 1 Sell, the stock claims a Strong Buy consensus rating. (See NVDA stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.