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Citi has penned an important investment note on NVIDIA today, touching on the stock's immediate prospects and the likely trajectory of the GPU manufacturer's margins as the Blackwell production ramp-up gets underway.
Citi's NVIDIA Note: " We Believe AI Adoption Remains In 3rd/4th Innings As Enterprise AI Demand Takes Off Next With AI agents"
Off the bat, Citi has asserted that NVIDIA's under-pressure gross margins will bottom out in the low-70s percents in Q1 2025, with the Wall Street titan continuing to view the ~72 percent level as the likely trough. After Q1, Citi expects NVIDIA's gross margins to stabilize in "the mid-70s%" as the Blackwell architecture ramps up.
The bank notes:
"While we are bullish on another strong +40% Y/Y cloud data center capex growth next year, we expect the stock to likely remain range bound through CES Jan before Blackwell driven Y/Y sales and gross margin inflection in the Apr-Q."
On the topic of the GPU competition that is rapidly heating up, Citi perceives no immediate threat as NVIDIA's products currently lead the market on multiple metrics, including the Total Cost of Ownership (TCO) and the Return on Investment (ROI).
The bank believes data centers prefer NVIDIA's GPUs for the flexibility that they offer:
"As NVDA runs various applications including AI, the data center operators rely on NVDA to have the hardware to run multiple applications rather than buying accelerators that are limited in their use cases."
According to the bank, an enterprise operating across multiple cloud-based platforms has to re-write its applications specific to every cloud operator, which poses a huge pain point. In contrast, "with NVDA GPUs, enterprises write their applications once as it will be transferable across clouds."
What's more, NVIDIA's large installed base already constitutes a strong pull for developers, who desire "the largest possible adoption of their applications."
On the topic of the Blackwell sales mix, Citi asserts that the GB200 chip will attract a greater proportion of orders from customers instead of the "B100’s 8-GPU format," owing to the former's favorable TCO and ROI metrics.
In light of its positive - if a bit dampened - view on NVIDIA, Citi has maintained its Buy rating on the stock with a target of $150 per share.
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