D.A. Davidson analyst Gil Luria shared his thoughts on Nvidia’s (NVDA) $100 billion deal with OpenAI. Luria is concerned that Nvidia has effectively become the “investor of last resort” for the ChatGPT maker, bailing out OpenAI’s “overextended commitments.” News of the deal pushed NVDA shares to a new 52-week high of $184.55 yesterday.
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Luria maintained his “Buy” rating on NVDA stock with a $210 price target, which implies 14.4% upside potential from current levels. Luria is a five-star analyst on TipRanks, ranking #468 out of 10,050 analysts tracked. He has a 59% success rate and an average return per rating of 17.30%.
Nvidia-OpenAI Deal Raises Red Flags
Nvidia and OpenAI signed a letter of intent (LOI) under which OpenAI will use at least 10 gigawatts of Nvidia systems for training and inferencing of its future models. As part of this strategic partnership, Nvidia will progressively invest up to $100 billion in OpenAI as each gigawatt is deployed.
Luria sees the arrangement as a massive growth opportunity for OpenAI, enabling it to scale operations more efficiently. However, he warns that Nvidia might be taking on too much financial risk by stepping in to support OpenAI’s heavy commitments.
Other analysts have also expressed concerns about the “circular flow” created by such deals, which may spark regulatory scrutiny. Under the deal, Nvidia will first invest the money in OpenAI, which in turn uses those funds to buy Nvidia’s chips, creating a tight financial loop.
Luria’s Stance on Nvidia
Notably, Luria has not always been bullish on Nvidia. He recently upgraded Nvidia stock from Hold to Buy and increased his price target from $195 to $210. Luria highlighted the strong demand for AI compute, which is expected to sustain Nvidia’s robust performance well into next year and beyond.
Regardless of the risks, the deal makes Nvidia the most important supplier of AI hardware. It gives Nvidia strong advantages in size, key customers, and advanced technology, making it much harder for rivals like AMD (AMD), Intel (INTC), Amazon’s (AMZN) AWS, or Alphabet’s (GOOGL) Google Cloud to catch up soon.
Is NVDA Stock a Buy, Hold, or Sell?
On TipRanks, NVDA stock has a Strong Buy consensus rating based on 37 Buys, two Holds, and one Sell rating. The average Nvidia price target of $211.97 implies 15.5% upside potential from current levels. year-to-date, Nvidia stock has surged 36.8%.
