RBC Initiates Nvidia at Outperform: $500 Billion Backlog Anchors $240 Price Target

RBC Capital Markets has initiated coverage of Nvidia with an Outperform rating and a $240 price target, adding another major Wall Street voice to the chorus of bulls betting on the artificial intelligence chip leader. The target implies roughly 31% upside from Nvidia's Wednesday close of $183.14.

The initiation comes as Nvidia shares have pulled back from their highs amid broader concerns about AI infrastructure spending sustainability and competition from AMD and custom chip designs. RBC's timing suggests the firm sees the correction as an opportunity rather than a warning sign.

The $500 Billion Backlog

At the heart of RBC's bullish thesis is Nvidia's extraordinary order backlog, which analyst Srini Pajjuri pegged at more than $500 billion. To put that figure in perspective, it represents roughly five years of revenue at Nvidia's current run rate—an almost unprecedented demand visibility for a semiconductor company.

"We have limited concern about competition, noting Nvidia's full-stack performance leadership and ecosystem dominance," Pajjuri wrote in his initiation note.

The backlog reflects commitments from hyperscale cloud providers, enterprise customers, and sovereign nations all racing to build AI computing capacity. While backlogs can shift, the sheer magnitude provides Nvidia with visibility that few technology companies enjoy.

Cloud Capex Trajectory Remains Strong

RBC's analysis centers on the sustainability of cloud capital expenditure, which has been the primary driver of Nvidia's growth. The firm expects cloud capex to remain elevated for the next 12 to 18 months, driven by intense competition among major hyperscalers who are well-capitalized and determined to win the AI infrastructure race.

"Cloud capital expenditure will remain elevated for the next 12-18 months, driven by intense competition among major hyperscalers who are well-capitalized."

— Srini Pajjuri, RBC Capital Markets

Microsoft, Amazon, Google, and Meta have all signaled aggressive AI infrastructure buildouts extending through 2026 and beyond. Their spending commitments provide a floor under Nvidia's near-term revenue trajectory.

The Valuation Disconnect

Perhaps the most compelling element of RBC's thesis is the valuation argument. According to Pajjuri, Nvidia trades at approximately a 20% discount to both its semiconductor peers and the "Magnificent Seven" technology stocks.

For a company with Nvidia's growth profile and competitive position, this discount seems anomalous. The gap likely reflects lingering concerns about cyclicality, competition, and whether current AI spending levels are sustainable.

RBC argues these concerns are overblown. The firm points to Nvidia's balance sheet strength—roughly $30 billion in cash and equivalents—as providing additional downside protection. Even if AI spending were to moderate, Nvidia has the financial flexibility to invest through any slowdown.

Inferencing: The Next Growth Frontier

While training large language models has driven Nvidia's initial AI boom, RBC highlighted surging inference demand as the next growth catalyst. Inference—running trained models to generate outputs—requires ongoing, recurring compute capacity. As AI applications proliferate, inference spending could eventually dwarf training investments.

Enterprise AI adoption is also accelerating beyond the hyperscale giants. Financial services firms, healthcare companies, and manufacturers are all investing in AI infrastructure, broadening Nvidia's customer base beyond the handful of cloud giants that dominated early demand.

Competition Concerns Addressed

The bear case against Nvidia typically centers on competition: AMD's MI300 chips have gained traction, and custom silicon from Google, Amazon, and Apple threatens Nvidia's dominance. RBC acknowledged these concerns but dismissed them as overstated.

The firm emphasized Nvidia's "full-stack performance leadership"—not just the chips themselves, but the CUDA software ecosystem that makes Nvidia GPUs the default choice for AI developers. This software moat has proven remarkably durable despite competitors' efforts to replicate it.

Street Remains Overwhelmingly Bullish

RBC joins an overwhelmingly bullish Wall Street consensus on Nvidia. More than 85% of analysts maintain Buy or Strong Buy ratings, with price targets ranging from $200 to $275. Baird recently reiterated its Outperform rating with a $275 target, while Wolfe Research has also maintained its positive stance.

The consensus view holds that Nvidia's AI monopoly—while perhaps not permanent—has years to run. The company's lead in data center GPUs, combined with its software ecosystem, creates switching costs that competitors have struggled to overcome.

Investment Takeaway

For investors weighing Nvidia exposure, RBC's initiation provides a useful framework. The $500 billion backlog offers visibility that de-risks near-term estimates. The 20% valuation discount to peers suggests the market may be too pessimistic about sustainability. And the shift toward inference spending could extend Nvidia's growth runway beyond what training-focused models would suggest.

The risks are real—cyclicality, competition, and customer concentration could all pressure shares. But RBC's analysis suggests the risk-reward calculus favors bulls at current levels. For investors with a 12-18 month horizon, the $240 target implies meaningful upside if the AI spending thesis proves durable.