Nvidia Forecast To Excel In Data Center, Gaming And Why Analysts Predict Strong Supply Improvement

Oppenheimer analyst Rick Schafer reiterated an Outperform rating on Nvidia Corp NVDA with a $650 target. The analyst expected upside results and outlook as supply gradually improve against his estimated 20% "excess" demand. 

Advanced packaging (CoWoS) is pinch-point and likely gates upside magnitude, the analyst noted, adding that supply constraints should ease sequentially through next year as Taiwan Semiconductor Mfg. Co. Ltd.TSM CoWoS capacity increases by 20% shortly and at least doubles exiting 2024. 

The U.S. government tightened China export rules on Oct. 17, restricting sale of A100, H100, A800, H800, L40, L40S and RTX 4090. 

Management announced HGX20, L2 PCIe and L20 PCIe to comply with restrictions. 

Schafer noted new SKUs may still be subject to government approval and licensing. China accounts for ~20% of DC sales. 

The gross margin will likely be up 135bps to 72.5% in the third quarter. 

Schafer saw room for continued gross margin expansion into the mid-70% as DC leads growth.

Nvidia remained the purest scale play on AI adoption. Sustained structural growth led by DC AI as accelerator attach increases could hit 40%–50% in cloud within five years versus 20% today. Nvidia's entrenched DC and AI ecosystem is core to GenAI adoption.

Schafer projects third-quarter revenue and EPS of $16 billion (consensus $14.82 billion) and $3.33 (consensus $3.09). He estimated fourth-quarter revenue and EPS of $16.9 billion (consensus $16.31 billion) and $3.53 (consensus $3.44).

Also Read: Nvidia Likely to Outperform in Data Center and Gaming Segments: Goldman Sachs Analyst

UBS analyst Timothy Arcuri reiterated a Buy rating and a price target of $560.

The China export controls could chop off some end-of-third quarter (October) WIP or rush orders, but likely make fourth quarter (January) guidance that much better, said the analyst.

The analyst noted fourth-quarter guidance quickly clearing investor expectations of ~$17 billion-17.5 billion for data center and ~$20 billion 21 billion for total revenue (UBSe ~$19.6 billion, Street ~$17.8 billion). 

CoWoS remained the primary supply constraint, but the new send-source capacity (beyond TSMC) for post-processing of interposers and die attach should add a new "degree of freedom" for fourth-quarter revenue, Arcuri wrote.

Additionally, supply chain work suggests that fourth quarter demand for L40S is robust (maybe 100k+ units continuing to grow in F1H:25) as U.S. demand is being filled faster since the somewhat unexpected inclusion of L40S in the ban. 

NVDA Price Action: Nvidia shares traded higher by 0.17% at $489.99 on the last check Thursday.

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