Nvidia’s shares have outperformed the S&P 500 by five percentage points over the past month, and expectations are elevated ahead of its Aug. 26 earnings report. Analysts note that while the company’s investment portfolio and AI leadership are widely recognized, unlocking a further rerating will require a new narrative beyond earnings growth or product roadmaps.
HSBC analyst Frank Lee, in a Friday note, contends that Nvidia’s path to a higher valuation lies in positioning itself as the world’s largest contributor to open-source AI. According to Nvidia, open-source models now represent the second most popular category by token generation, a shift Lee describes as critical for the adoption of small language models (SLMs). These models are increasingly favored for agentic AI and on-device applications, which could significantly expand Nvidia’s total addressable market.
Lee argues that a stronger focus on SLMs could lower barriers to enterprise inference, enabling millions of developers and sovereign nations to access Nvidia’s infrastructure. This expansion beyond frontier labs would broaden the company’s revenue potential and justify a higher valuation.
Nvidia has already taken steps to support its stock performance. Earlier this month, the company partnered with financial firms including Apollo Global Management, BlackRock, Blackstone, Brookfield, Goldman Sachs, and KKR to launch independent compute financing platforms. The consortium plans to deploy $500 billion in private capital to fund AI data centers and "AI factories," transforming Nvidia hardware into an investable asset class for institutional investors.
CEO Jensen Huang followed this announcement with a $105 billion credit support and residual value guarantee deal for SB Energy’s 8-gigawatt PORTS Technology Campus in Pike County, Ohio. The facility, leased exclusively by OpenAI, will run on Nvidia’s AI infrastructure, further embedding the company’s technology in key AI deployments.
