Nvidia's Mystery Upside: Will Its Q1 Show Stopper Turn Into a Q2 Blockbuster?

Wedbush analyst Matt Bryson maintains Nvidia Corp NVDA with a Neutral and raises the price target from $216 to $290.

The analyst expects Nvidia to exceed current Street and Wedbush targets and to offer a robust forward outlook. 

However, Bryson questions the magnitude and nature of Nvidia's upside.

Nvidia's data center business has only strengthened since his channel checks in February and March pointed to incremental demand for its GPUs for AI projects and certain downstream suppliers, signaling some pickup in the chipmaker's activity.

The analyst's checks through March into early April suggested surprisingly robust activity in gaming.

Bryson is also unclear about how much topline upside Nvidia might have realized in Q1 or how much it can grow revenue beyond expectations in Q2.

The magnitude of H100 shortages became much more evident as the quarter progressed into March and April though his checks also suggested that much of the pickup in large AI requirements will likely hit in the second half of CY23. 

Also, given the timing of increased wafer starts, packaging requirements, and prior expectations around project ramps, he believes Nvidia's more considerable topline upside might manifest in the second half. As such, while he expects a beat, the magnitude might not be as much as anticipated due to H100 constraints, with the upside coming more at the margin.

However, the analyst remained broadminded over the gross margins following its shift towards higher margin data center sales as a portion of the total mix.

The analyst does not have a strong view of the quarter and guide (vs. heightened expectations). However, given the robust forward outlook with AI spending building through at least the first half of CY24, he struggled to see even a result that doesn't meet whisper expectations as weighing on Nvidia beyond the short term.

Price Action: NVDA shares closed lower by 0.28% at $311.78 on Monday.