Nvidia is set to announce its latest earnings, and analysts are predicting significant growth in profit. While most analysts are focusing on the immediate financial results, Wells Fargo’s Aaron Rakers is looking beyond the current numbers. Rakers believes that Nvidia has the potential to earn billions in revenue and operating profit in the future by monetizing its software. He predicts that Nvidia could generate $4 billion to $5 billion in annual revenue, with operating profit ranging from $2 billion to $3 billion within the next few years. This represents a potential 50% to 60% operating profit margin, significantly surpassing the 33% operating margin from selling computer chips.
The software segment is relatively new for Nvidia, and Rakers believes this could be the next phase of the company’s growth story. He anticipates that Nvidia’s software, including AI Enterprise Software, virtual reality software, and NVIDIA DRIVE software, could become increasingly visible in the next few years. As Nvidia prepares to report its Q3 earnings on November 21, there is a possibility that software revenues could top $1 billion, signaling the realization of Rakers’ predictions. Despite his conservative estimates, Rakers has rated Nvidia stock as overweight with a price target of $600, signaling a potential 24% upside from current levels.
The stock is also backed by a Strong Buy consensus rating, with analysts predicting approximately 34% gains in the next year. If Rakers’ predictions hold true, this could potentially lead to other Wall Street analysts revising their outlook on Nvidia’s stock. It will be interesting to see how Nvidia’s software business evolves in the coming years and its impact on the company’s profitability.
