Nvidia (NVDA) shares experienced a notable decline in early Tuesday trading as analysts adjusted their price targets ahead of the AI-chip maker’s pivotal fourth-quarter earnings report, scheduled after Wednesday’s market close.
As the third-largest stock by market value, trailing behind Microsoft (MSFT) and Apple (AAPL), Nvidia plays a crucial role in driving the tech-focused Nasdaq towards a potential record high this month, having already surged more than 50% since the beginning of the year.
However, the fortunes of Nvidia and its prominent peers, including Microsoft, Meta Platforms (META), and Amazon (AMZN), hold significant sway over the broader market, collectively contributing approximately 75% of the S&P 500’s total return. This concentration underscores the importance of Nvidia’s near-term performance for both the tech sector and the broader market as spring approaches.
The focus now intensifies on Nvidia’s earnings for the January quarter and its outlook for the current quarter, details of which CEO Jensen Huang is expected to provide during an upcoming conference call with analysts.
Wedbush analyst Dan Ives anticipates another substantial performance from Nvidia, characterizing it as a potential “beat and raise” scenario. He emphasizes the importance of data center artificial intelligence-driven spending, highlighting Nvidia’s dominance in providing the necessary graphics-processing units for such applications.
While near-term spending from major cloud-computing-service providers remains robust, potential supply-chain issues loom over Nvidia’s outlook. Constraints related to chip-on-wafer-on-substrate (CoWoS) technology, essential for AI-chip manufacturing, could impact deliveries. Demand for this advanced packaging technology has surged, driven by companies like Nvidia, Amazon, and Broadcom (AVGO), as they strive to meet growing market demand.
Taiwan Semiconductor (TSM), a key chip contractor, has faced challenges in meeting the increased demand for CoWoS technology. Despite efforts to ramp up capacity, supply constraints are expected to persist, potentially affecting Nvidia’s operations.
However, Tristan Gerra, a senior research analyst at Baird, remains optimistic, noting Taiwan Semi’s plans to double CoWoS capacity this year, which should alleviate supply pressures in the latter part of the year.
Gerra’s optimism is reflected in his upward revision of Nvidia’s price target to $1,050 per share, reflecting strong demand for Nvidia’s AI solutions and anticipation of the upcoming Blackwell architecture launch.
In addition to supply-chain challenges, Nvidia faces hurdles in launching AI chips for customers in China, following export restrictions imposed by the U.S. government. Delays in delivering the new H20 chips could impact Nvidia’s market share in China’s lucrative chip market.
Despite these challenges, Wall Street expects a substantial increase in Nvidia’s January-quarter sales, with forecasts suggesting a fourfold surge to over $20.62 billion, accompanied by expanded profit margins.
HSBC analyst Frank Lee maintains a cautious stance, acknowledging elevated market expectations but sees limited room for further earnings upside in 2024 compared to the surprises witnessed in 2023.
Short sellers have found betting against Nvidia to be a challenging endeavor this year, with losses exceeding $5.97 billion, making it the least profitable trade on Wall Street.
Although Nvidia shares retreated 4.8% in early Tuesday trading to $691.12, they remain significantly higher, up over 47% in the past six months, underscoring the stock’s resilience amidst market fluctuations.
