UBS Analyst Eyes GPU Bottlenecks for Microsoft's AI Push, Nvidia's Supply Chain in the Spotlight

UBS analyst Karl Keirstead reiterated a Buy rating on Microsoft Corp MSFT with a price target of $400.

Microsoft Corp MSFT, Amazon.Com Inc AMZN, and software firms like Adobe Inc's ADBE ability to deliver on their expected AI revenue streams in 2024 is in part a function of these firms building out or securing access to a relatively new AI technology stack. 

Microsoft and others are facing a constrained supply of Nvidia Corp NVDA GPUs.

The analyst flagged the need to assess the risk that Microsoft cannot get sufficient access to GPUs to deliver on its projected Copilot revenue ramp and the AI ambitions of its customer base. 

The AI opportunity that has powered the material out-performance in technology stocks this year primarily comes from one supplier – Nvidia, the dominant provider of GPUs. 

There is plenty of evidence that GPU demand is out-stripping supply; Microsoft's guidance for ~$50 billion of capex in FY24 speaks to a material AI capacity build-out, and supply shortages have already started having an impact - evident in Super Micro Computer, Inc's SMCI recent quarterly results. 

While Nvidia's print last week offered incremental comfort that it is addressing its supply chain constraints, this remains a risk to Microsoft that investors must thoroughly assess and measure. 

GPU capacity constraints are a reality, not a hypothetical and low-probability "black swan" event.

Price Action: NVDA shares traded higher by 4.46% at $489.23 on the last check Tuesday.