Goldman Sachs remains bullish on Nvidia Corp (NASDAQ:NVDA, ETR:NVD) as investors debate the nature of recent strategic investments in firms such as OpenAI and the extent to which these could be recycled by investees as GPU spending, which is recognized by Nvidia as “circular” revenue.
This circular revenue arises because Nvidia both supplies GPUs to investees and takes an equity stake, meaning some revenue flows back into the company’s ecosystem.
Goldman’s analysts see potential “circular revenue” from strategic investments as potentially dilutive to Nvidia’s multiple.
“As with any strategic investment in a customer which is not self-financing, we believe investors will focus on the fundamentals of that customer,” they wrote.
“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.”
They note that while this structure supports Nvidia’s AI ecosystem, it may complicate the assessment of core earnings.
However, they continue to see significant upside to their 2026 estimates, noting they are “comfortable” in the risk/reward given “circular” deals represent less than 15% of revenue in 2027.
Goldman sees the sustainability of OpenAI’s infrastructure spending increasingly dependent on equity and debt financing.
“Given OpenAI’s public comments on planned infrastructure investments, we believe it will increasingly need to rely on equity/debt raises, with up to $75 billion in 2026 alone,” they wrote.
“Thus far, these projects (such as Oracle’s $18 billion debt raise to support OpenAI) appear to be gaining strong market traction.”
Most of this spending is associated with large-scale datacenter projects and AI model training, highlighting the capital-intensive nature of OpenAI’s operations.
Goldman has a ‘Buy’ rating on Nvidia with a $210 price target, implying upside of 11.9% from its share price at the time of writing.
“We expect near-term strength in Nvidia’s fundamentals driven by upside from both hyperscalers and non-traditional customers - and continue to see the hyperscaler revenue contribution dominating the company’s revenue mix,” they wrote.
“We remain bullish on the stock given the potential upside we see to estimates - but are more guarded on the stock’s multiple given increased long-term risks driven by the growing mix of non-traditional customers - including sovereign and startup customers (such as OpenAI).”
These non-traditional customers may introduce more variability in revenue and profitability, though they also offer exposure to high-growth AI opportunities, Goldman believes.