Amidst broader market fluctuations in August and September, and concerns triggered by fresh U.S. restrictions on chip sales to China, Nvidia Corp. NVDA saw its shares pull back from their $500-plus highs. In anticipation of the upcoming semiconductor earnings season, KeyBanc Capital Markets analyst John Vinh shared his insights on what’s ahead for Nvidia investors.
Rating Adjustment: Vinh, who has an Overweight rating on Nvidia shares, cut the stock’s price target from $750 to $650. The semiconductor giant is slated to unveil its third-quarter results after the market’s close on Nov. 21.
Nvidia Thesis: Vinh anticipates a marginal near-term effect on Nvidia from the updated U.S. export restrictions. He believes the company will manage to compensate with global demand and expects China to accelerate purchases ahead of the Nov. 15 implementation of the new export controls.
However, to reflect the challenges posed by additional China restrictions, Vinh has lowered his fiscal year 2025 estimates for Nvidia. Historically, China has accounted for 20-25% of the company’s data center revenue.
He suggests that the adverse effects from these export restrictions will likely be more pronounced in the latter half of next year, with revenue from Chinese data center sales expected to gravitate towards the lower end of the range.
Vinh’s revised projections for 2025 include revenue and earnings per share figures of $96.8 billion and $20.84, respectively, down from his earlier forecast of $116 billion and $25.63. This adjustment informed his revised price target of $650, calculated with a valuation multiple of 31 times the estimated earnings for 2025.
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In the latter half of the current fiscal year, Vinh expects Nvidia to benefit from increased Chip-on-Wafer-on-Substrate (CoWoS) supply and strong demand for L40S, as well as a shift towards higher ASP H100 GPUs.
He also anticipates that Nvidia will surpass expectations in the third quarter and provide above-consensus guidance for the fourth quarter. KeyBanc’s third-quarter estimates for Nvidia stand at $17 billion in revenue and earnings of $3.57 per share, compared to the consensus forecast of $16.9 billion in revenue and earnings of $3.35 per share.
“Street sentiment on the name is cautiously positive, given its unique position in monetizing generative AI upsides, offset by LT concerns over the impact of the new export controls to China,” Vinh noted.
Looking ahead, investors are likely to focus on the long-term implications of the new China restrictions, as well as developments related to the H100 new L40S, initial insights into 2024, order visibility, and updates on CoWoS and the company’s ability to meet demand.
Nvidia Price Action: Nvidia stock ended Thursday’s session down 0.23% at $421.01, according to Benzinga Pro data. This marks a pullback from its all-time high of $502.66 hit in late August. In premarket trading on Friday, the stock rose 0.38% to $422.60.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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