Why Nvidia's stock can scale the 'wall of worry,' according to UBS

By Emily Bary

Nvidia's stock charges ahead in chip-sector rally as Intel, Super Micro shares also see big gains

Nvidia Corp.'s stock is still well-loved on Wall Street, but UBS analyst Timothy Arcuri notes that sentiment "has faded somewhat in recent weeks."

Investors recently have rotated a bit into portions of the technology sector that didn't get the same attention in the first half of the year - including software stocks and lagging chip plays like Advanced Micro Devices Inc. shares (AMD) - and as some analysts have expressed concern about whether spending on artificial-intelligence capital expenditures is too high for the revenue that AI is expected to drive.

Read: AMD and Intel shares have lagged this year. Why a rebound could be in store.

See also: Nvidia's stock gets a downgrade as AMD, TSMC shares are deemed top plays

UBS's Arcuri said investors see a "wall of worry" of sorts for Nvidia (NVDA), but that's one that the company should be able to climb, provided his outlook pans out. Arcuri is upbeat about Nvidia's new Blackwell chip lineup, which will start shipping later this year.

His recent supply-chain work indicates "that demand momentum for Blackwell rack-scale systems remains exceedingly robust," he wrote in a Monday note to clients. Customers seem to like the power efficiency of the rack-scale offerings.

The trend "will translate into a richer revenue mix than with Hopper," Nvidia's older chip lineup, Arcuri said.

"Even though our estimates have consistently been well ahead of Street, we are even now still baking in a gap to what is being suggested by the supply chain," he added.

Arcuri expects Nvidia to see $204 billion in revenue next calendar year, along with $4.95 a share in adjusted earnings. His prior estimates called for $178 billion and $4.22, respectively. The FactSet consensus calls for $159 billion in revenue along with $3.57 in adjusted earnings per share.

Arcuri noted that hyperscalers are expected to increase their capital expenditures at rates similar to his projections for Nvidia's revenue growth.

He also boosted his price target on Nvidia shares to $150 from $120, while keeping his buy rating on the stock.

Nvidia's stock is up 3.7% in morning trading Monday on a strong day for chip stocks, with shares of AMD, Intel Corp. (INTC) and Super Micro Computer Inc. (SMCI) all moving nicely higher. The PHLX Semiconductor Index SOX is ahead 1.7%.

Don't miss: Nvidia is most-owned chip stock in active funds - but another is moving up fast

-Emily Bary

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07-08-24 1011ET

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