Wall Street bets on NVIDIA's impressive Q1 financial report, with a bullish target price of $1100

According to the Zhitong Finance and Economics APP, Wall Street is betting that NVIDIA (NVDA.US) will release quarterly earnings after the US stock market closes on Wednesday that exceed expectations. Investors are looking for evidence to prove whether this artificial intelligence chip manufacturer can maintain explosive growth and stay ahead of competitors.

This quarter's financial report will be the latest test for NVIDIA as the biggest winner in the generative artificial intelligence boom, with its chips being crucial for technologies such as Google's Gemini and OpenAI's ChatGPT.

Will Rhind, founder and CEO of GraniteShares, said, "NVIDIA's earnings have a significant impact on the market. It is the most important stock in the industry." His company operates an ETF that invests in this chip company.

Since the beginning of 2023, NVIDIA's stock price has more than sextupled, making it the third most valuable company on Wall Street with a market capitalization exceeding $2.3 trillion. Year-to-date in 2024, its stock price has surged by 89%, helping boost the broader market. NVIDIA currently accounts for 5% of the S&P 500 index.

Figure 1

Market Expects NVIDIA's Stock Price and Earnings to Rise

Analysts' expectations for NVIDIA's future earnings growth rate even exceed the rise in its stock price. According to data from LSEG, the stock's current P/E ratio is around 35 times, lower than the peak of over 80 times in June last year.

Figure 2

Despite NVIDIA's staggering valuation, analysts believe there is still room for growth. Rhind pointed out, "NVIDIA's value is underestimated relative to expectations."

According to LSEG data, analysts on average expect NVIDIA's first-quarter revenue to grow by 242% to reach $24.6 billion. Sales for the second quarter are expected to increase by nearly 97%. Analysts also predict that the company's first-quarter net profit will reach $12.83 billion, higher than $2.04 billion in the same period last year.

Figure 3

David O'Connor, an analyst at French bank Exane, stated that as numbers get bigger, percentage growth will face challenges. The rising prices of high-bandwidth memory chips used in AI semiconductors may also weaken Nvidia's profit margins. Analysts predict that the adjusted gross margin for the second quarter will be 75.8%, compared to an expected 77% for the first quarter.

Inge Heydorn, a partner at GP Bullhound, pointed out that the rising memory costs may have a slight impact on gross margins.

It is worth noting that Nvidia is set to launch the highly anticipated Blackwell GPU series by the end of the year, which will bring new vitality to the artificial intelligence processor market. However, with the surge in demand, Nvidia's contract manufacturer TSMC is facing challenges in production capacity.

In response to this, Heydorn from GP Bullhound also stated, "The main bottleneck currently constraining Nvidia's development is supply issues."

Furthermore, investors are concerned about Washington's restrictions on Nvidia's top artificial intelligence chips being exported to China, leading to its revenue share from China dropping from around 22% in the third quarter to about 9% in the fourth quarter.

Multiple investment banks raise Nvidia's target price

Nvidia's first-quarter financial report has become the focus of attention this week, with several investment firms raising their target prices before its first-quarter results were released.

Among them, Barclays analyst Blayne Curtis stated that a recent survey of Nvidia's data center division showed that with more capacity coming online, the company's potential growth rate for the first quarter is 10%, slightly higher than 20% for the second quarter. Based on these positive market signals, Curtis rates Nvidia as "hold" and raises the target stock price from $850 to $1,100.

"Looking ahead to next year, the supply chain still expects the GB system to launch ahead of the standalone Blackwell GPU, and anticipates the H series to remain a key part of next year's overall lineup, consistent with management comments from our factory visits last quarter," Curtis wrote in an investor report.

Despite investor concerns about a potential market gap before the release of the Blackwell GPU this quarter, Curtis stated that they have not found any evidence to suggest that this scenario will occur. He added, "Our survey tone remains largely unchanged. Overall, survey results continue to show over $1 billion of upside in the first quarter and over $2 billion of upside in the second quarter."

Stifel analyst Ruben Roy also raised his target price from $910 to $1,085. This adjustment reflects strong demand for Nvidia's H100 and H200 GPUs as shown in supply chain checks, while the market continues to hold high expectations for the upcoming Blackwell GPU series

Summary

Overall, analysts are confident in NVIDIA's growth prospects in the generative artificial intelligence competition with Microsoft and Meta Platforms. According to research firm Canalys, global spending on cloud infrastructure services may grow by 20% by 2024.

Ido Caspi, an analyst at Global X ETFs, stated, "Large tech companies still have high capital expenditures. Despite their efforts to explore alternative or in-house chips, their choices are limited by supply constraints and challenges to surpass NVIDIA's proven performance."

Therefore, NVIDIA is expected to remain a industry leader in the foreseeable future, with the market holding an optimistic view on its growth prospects.