UBS analysts have taken a firm stance on Nvidia (NVDA), dismissing recent market concerns as “overblown.” Despite the stock’s stagnation since the last earnings report, UBS sees Nvidia poised to outperform expectations, driven by strong upcoming financial results.
The primary concerns among investors have revolved around potential supply chain disruptions and the transition to the new Blackwell server racks. However, UBS counters these concerns by highlighting significant improvements in Blackwell chipset and compute board yields. They note that the product mix for both the January (FQ4) and April (FQ1) quarters is swiftly transitioning from the older Hopper systems to the more advanced Blackwell, suggesting a positive shift in Nvidia’s product lifecycle management.
Another critical point UBS addresses is Nvidia’s revenue recognition strategy. The company recognizes revenue upon the transfer of compute boards to Original Design Manufacturers (ODMs) or Original Equipment Manufacturers (OEMs). This practice, according to UBS, is strategically beneficial as it allows end customers like major hyperscalers to use ODMs’ working capital, sometimes even providing bridge financing for inventory. This approach aids Nvidia in navigating supply chain complexities more effectively.
On the hardware side, while acknowledging some remaining challenges, UBS notes significant progress, particularly with the supply of connector cartridges from Amphenol Corp. (APH). Their Asia team also believes that further enhancements in other components are on the horizon, indicating a path to resolution of current issues.
Regarding the production and shipment of Blackwell rack systems, UBS confirms positive developments. Hon Hai, also known as Foxconn, which holds about 40% of the market for GB200 rack-scale systems according to UBS estimates, has begun volume shipments in the latter half of January. Another key player, Quanta, is expected to increase its production capacity by late February or March, further supporting Nvidia’s supply chain.
UBS has updated its financial projections for Nvidia, now estimating Blackwell revenue to be approximately $9 billion for the January quarter, an increase from the previous $5 billion forecast. This adjustment reflects UBS’s confidence in Nvidia’s ability to meet or exceed expectations. The bank upholds its price target of $185 for Nvidia, maintaining a bullish outlook with the comment that “Net, our estimates are largely unchanged.”
This analysis by UBS underscores their belief in Nvidia’s resilience and strategic positioning to “rise above the noise” of market fears, focusing on the company’s operational improvements and market adaptability.
Price Action: Nvidia shares closed Wednesday’s session up 6.24% to $147.07. After hours, the $3.45 trillion market-cap company lost $1.82, or 1.24%, dropping to $145.25, bringing year-to-date gains to approximately 10%.
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