In a recent report, Goldman Sachs argued that the recent brutal sell-off in AI chip stock Nvidia presents an attractive entry point for investors. Nvidia's shares have seen a significant decline, losing 17% of its market cap since the company issued muted third-quarter guidance, raising concerns about the sustainability of its rapid earnings growth.

Goldman Sachs semiconductor analyst, Toshiya Hari, expressed confidence in the future sales of Nvidia as customers outside of the three cloud hyperscalers (Amazon, Microsoft, and Google) start investing in their own AI compute clusters. Hari acknowledged that there is a strong demand for accelerated computing, which is expected to broaden beyond the enterprise sector into sovereign states.

Hari reaffirmed his 'buy' recommendation on Nvidia's stock, describing it as oversold. He noted that the stock's price-to-earnings multiple is now in the low 20s due to the recent pull-back, making it a more attractive investment opportunity compared to other high-growth tech stocks such as Tesla.

One of the challenges Nvidia is facing is a combination of production bottlenecks and a lack of meaningful competition, leading to a scarcity of supply for its Hopper AI training chips. As a result, customers who manage to secure these chips are paying high prices, causing Nvidia's profit margins to increase.

In response to the limited supply, some tech companies, including Amazon and Tesla, are developing their own custom silicon, bypassing Nvidia. However, Hari believes that the threat is overblown. Nvidia's H100s currently dominate the AI chip market with a 90% share, giving the company a significant technological advantage over its rivals. While the development of custom silicon may result in lost sales for Nvidia, these proprietary chips would not be direct competitors in the open market.

Hari mentioned Google as an example of a company developing its own AI chips to enhance Google Search. However, he highlighted that Google Cloud Platform, a major Nvidia customer, continues to show a strong demand for Nvidia's GPUs.

Goldman Sachs also expressed a bearish outlook on Intel, stating that the company's CEO, Pat Gelsinger, faces an uphill battle. Intel is lagging behind competitors such as Nvidia, AMD, and Qualcomm on the product side. Additionally, its foundry business has no clear path to surpass Taiwan Semiconductor Manufacturing Company (TSMC) in terms of production technology.

Hari advised Intel to start meeting its guidance to regain market confidence. He emphasized that frequent disappointments in meeting targets negatively impact stock prices.

Neither Nvidia nor Intel provided immediate comment on the matter.

In summary, despite the recent sell-off, Goldman Sachs remains optimistic about Nvidia's future prospects, considering the strong demand for accelerated computing and the company's technological edge in the AI chip market.