'Ride the Nvidia Wave' - Wall Street Banks Raise the Price Targets for Nvidia Following the Release of Earnings Report

While we expect the debate around CY2025 earnings power to continue, we come away from the call with increased conviction that the combination of a) idiosyncratic product cycles across Nvidia's Compute (i.e. GH200, L40S) and Networking (Spectrum-X) franchise, b) strong demand from an increasingly diverse customer base (e.g. uptick in demand from regional cloud service providers and governments), and c) improving supply, will support growth in Data Center for the foreseeable future."

Expectations were high coming into the print and the team managed to deliver results/outlook that were above market expectations, in our view, driven by the massive demand pull for its datacenter products despite the impact of U.S. export controls (expect sales to China regions to decline significantly in the Jan-Qtr)."

The bottom line is that the exceptional tenor of the AI GPU market has not changed, as lead times remain elevated despite a steep supply chain ramp. Lead times are likely to come down at some point in CY24 given the steepness of the supply chain — and we spend quite a bit of time thinking about what that might mean for the stock if and when it happens — but that is simply not in evidence right now even with a very steep supply chain ramp."

Our Overweight rating is based on our positive stance on NVIDIA's competitive positioning in gaming GPUs and expanding growth opportunities in data center, HPC, and emerging / expanding AI opportunities (autonomous vehicles, healthcare, robotics, etc.). We see sustainability in NVIDIA's CUDA software platform differentiation, as well as the company's continually deepening system software capabilities. We see NVIDIA as one of the most attractive secular growth stories in large-cap semis."

Bears may complain about: 1) China weakness in Q4 outlook: China restriction a risk, but we think demand remains supply constrained well into CY24, with NVDA Q4 sales outlook well ahead even with China sales likely down 30-40% QoQ on our estimate; and 2) Sustainability of growth: we believe CY24 cloud strength will be continued by enterprise AI/copilot adoption, with NVDA targeting data center growth well into CY25E."

NVDA sure sounds confident on sustained growth — and it makes sense to us as waves of growth are starting to build with horizontal enterprise software companies starting to embed NVDA AI into their platforms to take out into the world and broaden the NVDA ecosystem. Net/net, we think it is still too early to get off this train - especially as NVDA becomes the de-facto global platform for what might be one of the most transformational technologies of our lifetime (AI)."

We are referring to the beat and raises here, driven by continued spend towards generative AI across verticals and industries. NVIDIA also appears to be opening up several complementary opportunities, such as what it sees as a multi-billion dollar opportunity for its Grace Hopper line-up, and its networking business, which has grown ~10x since the acquisition; seldom do we see an acquisition work out the way this one has in such short order."

NVDA, again, exceeded expectations with its 3Q results and 4Q outlook. 4Q guidance would have been higher if not for the expected drop-off in China revenue related to updated licensing requirements and export restrictions on certain high-performance products and systems. ... Commentary on inference, and longer-term opportunities in that arena, sound increasingly positive to us. Overall, many more positives than negatives, in our view."

At this point everyone knows that AI demand is strong, and hence the primary controversy on the stock has been the question of sustainability. At this point we doubt that question will find resolution; however numbers are going to continue marching materially higher, and it does seem the trajectory should be fine well into CY24 and plausibly beyond given continued strong demand and new product ramps which may help to support and sustain the trajectory. In the meantime China regulatory headwinds appear to be manageable for now given strong demand elsewhere, and the company is working on new products that will ideally be compliant which may help to backfill some of that missing demand over time."

While we believe there could be some investor concerns with sustainability of [date center] demand, we are estimating F25E DC up 50%+ y/y while NVDA noted it believes data center can grow through C2025. NVDA AI leadership has remained largely unchallenged, and we expect NVDA to continue to lead the market."