Nvidia (NAS: NVDA) and OpenAI announced a letter of intent for a strategic partnership to deploy at least 10 gigawatts (GW) of Nvidia systems for OpenAI’s artificial intelligence infrastructure. Nvidia intends to invest up to $100 billion in OpenAI “as new Nvidia systems are deployed.”

Why it matters: We think this partnership fits within the framework of the $500 billion Stargate project, announced in January. OpenAI and its Stargate partners have tremendous aspirations for AI, and Nvidia is cementing its role in these buildouts.

  • The deal also likely squashes any concern that OpenAI’s new custom chip (developed with Broadcom) will materially dent Nvidia’s AI market share within these data centers.

The bottom line: We maintain our $190 fair value estimate and our Very High Uncertainty Rating for wide-moat Nvidia. Shares rose about 4% on the news Sept. 22 and appear fairly valued.

  • Our valuation is based on tremendous AI adoption, and the letter of intent is one of several we like to see to support these bullish industrywide growth expectations.
  • The timing of buildouts was not disclosed. We’re cautiously optimistic that any expansion will be conducted at a measured and reasonable pace. Nvidia’s gear have short shelf lives, perhaps naturally squashing any temptation for massive buildouts years in advance of anticipated demand.

Coming up: We hope to hear more about Nvidia’s future investments in OpenAI. Nvidia certainly has excess cash to invest in OpenAI in this manner.

  • For now, we’ll consider any investments to be arm’s length transactions. However, these investments might be circular and raise related party concerns, as Nvidia may own shares in a customer that will likely use such funds to buy more Nvidia gear.
  • Further, and in general, we foresee four risks that may mute the industry’s AI aspirations—supply chain expansion, financing availability, energy/power requirements, and geopolitical restrictions. All this may affect the pace of this deal’s buildouts over time.

Nvidia valuation

Our fair value estimate is$ 190 per share. This fair value estimate implies an equity value of $ 4.4 trillion. Our fair value estimate implies a fiscal 2026 (ending January 2026 or effectively calendar 2025) price/ adjusted earnings multiple of 43 times and a fiscal 2027 forward price/ adjusted earnings multiple of 29 times.

Our fair value estimate, and Nvidia’s stock price, will be driven by its prospects in the data center, or DC, and AI GPUs, for better or worse. Nvidia’s DC business has achieved exponential growth already, rising from$ 3 billion in fiscal 2020 to$ 115 billion in fiscal 2025. DC revenue remains supply-constrained and near-term revenue will rise as more supply comes online. Nvidia earned $80 billion of DC revenue in the first half of fiscal 2026, even while missing out on up to $11 billion in revenue from China(per management). We model $103 billion of DC revenue in the second half of fiscal 2026, thanks to the rapid ramp-up of Blackwell Ultra rack-scale system solutions. We model 41% growth to $257 billion of DC revenue in fiscal 2027, thanks to the relatively higher prices associated with Blackwell Ultra, the rapid growth in supply of such products, and our expectations that Nvidia will resume selling previously banned H20 AI products (or perhaps newer equivalents) into China.

This growth rate compares to management’s estimates of 50% AI growth in the near-term. We then model 19% and 15% growth in fiscal 2028 and fiscal 2029, respectively, to$ 351 billion, resulting in a 32% CAGR from fiscal 2026 to fiscal 2029. The main driver of this tremendous growth is an ongoing increase in capital expenditures in data centers at leading enterprise and cloud computing customers.

Nvidia has suggested that each gigawatt-sized data center represents a$ 50 billion opportunity for the company, while the firm has line of sight to tens of such products being built out this decade. We think it is reasonable that Nvidia may face an inventory correction or a pause in AI demand at some point in the medium term thereafter, so we model only 2% growth in fiscal 2030. Excluding this one-year blip that we model, we anticipate average annual DC growth of 10%-12% thereafter and consider this to be a reasonable long-term growth rate as AI matures.

In the long run, we think that cloud computing revenue at the hyperscalers can grow at a low-teens rate, capital expenditures as a percentage of revenue remains at consistent levels at these hyperscalers, and thus we model Nvidia’s revenue growth to be on par with these cloud computing growth rates.

In gaming, which was formerly Nvidia’s largest business, we model $18 billion of revenue in fiscal 2026. We suspect that Nvidia may introduce a PC CPU in fiscal 2027, boosting revenue in this segment (if such revenue is in fact reported here) to $23 billion. We model 10% average annual revenue growth in gaming thereafter, bringing the total business to nearly$ 31 billion in fiscal 2030. We have high hopes for Nvidia’s automotive business as greater processing power will be required in active safety systems and autonomous driving. We model $2.6 billion of revenue in fiscal 2026 and revenue growing at a 20% CAGR over the next decade to $10.8 billion of revenue in fiscal 2035.

In summation, Nvidia achieved 126% and 114% revenue growth in fiscal 2024 and fiscal 2025, respectively. While these percentages will represent peak growth rates, we still anticipate robust growth for Nvidia in the years ahead. We model a three-year CAGR of 37% for Nvidia and long term, midcycle growth in the low teens thereafter. Nvidia’s massive DC growth has been gross margin-accretive, as GAAP gross margin expanded from 57% in fiscal 2023 to 75% in fiscal 2025. We model a near-term dip in GAAP gross margin to 70.5% in fiscal 2026 as Blackwell is a more costly product to ramp up and Nvidia will recover only a portion of the loss associated with its H20 writeoff earlier in fiscal 2026. However, Nvidia still expects mid-70% gross margins exiting fiscal 2026. In the long-run, we now anticipate that gross margin will not compress very much in the decade ahead, as we model a 74% GAAP gross margin in fiscal 2027 and lower it only to 72% range a decade from now. We are now more optimistic about Nvidia’s ability to retain its pricing power in DC products, thanks to the high switching costs associated with the Cuda platform. Nvidia earned an exceptional 62% GAAP operating margin in fiscal 2025, as it prospered from significant operating leverage during the AI boom. We anticipate that GAAP operating margins will be just under 60% in fiscal 2026, again due to the H20 writeoff, but rebound and stay in the low-60% range thereafter.

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