Wall Street banking giant just issued this chilling warning for Nvidia investors

Goldman Sachs analyst James Schneider cautioned that a portion of Nvidia's rapid sales growth might be attributed to "circular revenue," where the company's investments in AI startups, such as OpenAI, subsequently drive demand for its own GPUs, potentially inflating reported figures. Despite this concern regarding the organic nature of some demand, Schneider maintained a Buy rating and raised his price target for NVDA to $210 from $200, emphasizing Nvidia's strong position in the accelerating AI infrastructure race and its growing network of partners, including OpenAI's projected $75 billion infrastructure need by 2026.

Analysis

A Wall Street analyst has cautioned Nvidia (NASDAQ: NVDA) investors that the chipmaker’s explosive growth may not be entirely organic. To this end, Goldman Sachs’ James Schneider warned that part of Nvidia’s booming sales could stem from “circular revenue,” a cycle in which Nvidia’s own investments end up fueling demand for its products. Schneider explained that Nvidia’s financial ties with companies like OpenAI create a situation where the tech giant acts as both supplier and investor. When Nvidia backs AI startups that, in turn, spend heavily on its GPUs, it can inflate revenue figures that may appear to reflect independent customer demand. While this boosts short-term sales, Schneider cautioned that it could make Nvidia’s long-term growth less certain, as some of that demand relies on Nvidia’s own capital rather than external funding. This caution comes against the backdrop of Nvidia’s $100 billion investment in OpenAI, a partnership set to deploy at least 10 gigawatts of Nvidia systems, including millions of GPUs, to power OpenAI’s next-generation AI models. Goldman Sach new NVDA stock target Despite the warning, Schneider remained positive on Nvidia’s broader position in the AI ecosystem. He raised his price target for the stock to $210 from $200, maintaining a Buy rating. At the close of the last session, NVDA shares were trading at $187, down 0.7%, though the stock has rallied over 35% year-to-date. Schneider highlighted that Nvidia’s growing network of AI partners, including OpenAI and Oracle, could continue driving substantial demand for its cutting-edge chips as the AI infrastructure race accelerates. He added that OpenAI alone may require up to $75 billion in equity and debt by 2026 to fund its infrastructure, underscoring the scale of future AI hardware demand. Featured image via Shutterstock A Goldman Sachs analyst note introduces a significant nuance to Nvidia's growth narrative, highlighting the potential for "circular revenue." This phenomenon occurs when Nvidia's own venture investments in AI startups, such as its $100 billion commitment to an OpenAI partnership, subsequently fund the purchase of its GPUs, potentially inflating sales figures and masking the true level of organic, external demand. While this practice boosts short-term results, it introduces a degree of uncertainty regarding the sustainability of long-term growth, as a portion of demand is contingent on Nvidia's own capital deployment. Despite this caution, the analyst remains fundamentally bullish on the company's strategic position. The price target for NVDA was raised to $210 from $200 with a maintained "Buy" rating, reflecting confidence in the accelerating AI infrastructure race. The scale of this demand is underscored by projections that partners like OpenAI may require up to $75 billion by 2026, suggesting that even with some circularity, the overall demand for Nvidia's hardware remains exceptionally strong.

Key Decisions for Investors

• Investors should assess the quality of Nvidia's revenue by monitoring the extent of sales to companies within its own investment portfolio, as this 'circular revenue' could pose a risk to long-term growth sustainability.
• Despite concerns over revenue sources, the analyst's upgraded $210 price target and maintained 'Buy' rating signal that the powerful tailwinds from the AI infrastructure build-out are expected to continue driving performance in the near-to-medium term.
• It is prudent to watch for disclosures from Nvidia's key partners, such as OpenAI and Oracle, regarding their capital sources and infrastructure spending to better gauge the proportion of organic versus investment-fueled demand for GPUs.