Robust Demand and Supply Chain Strength Support Upgraded Outlook
In our latest assessment of NVIDIA Corp, we are raising our price target to $150 from the previous $120, reiterating our Buy rating on the stock. This decision follows comprehensive supply chain checks that confirm sustained and robust demand for Blackwell rack-scale systems, which has been a significant driver for our positive outlook on NVIDIA’s financial performance.
Strong Demand and Positive EPS Projections
Our supply chain analysis indicates that demand momentum for Blackwell rack-scale systems remains exceptionally strong. Based on current order pipelines for NVL72/36 systems, we believe that an EPS of approximately $5 for calendar year 2025 (CY25) is achievable. This projection is based on a material increase in orders compared to just two months ago, as hyperscaler budgets for CY25 become clearer.
Despite recent market sentiment showing some decline, the fundamentals of NVIDIA’s demand outlook remain robust. This slight dip in sentiment could ultimately prove healthy as it sets up a more realistic and sustainable growth trajectory. Consequently, we are revising our CY25 revenue and EPS estimates upwards by 12% and 15% respectively, projecting approximately $204 billion in revenue and an EPS of $4.95. These figures are significantly above the sell-side consensus of $161 billion in revenue and an EPS of $3.62.
Enhanced Supply Chain and Product Mix
The ongoing strong demand for Blackwell rack-scale systems is partly driven by their enhanced power efficiency, offering higher performance per watt compared to traditional server systems like B100/B200 HGX/DGX. This efficiency is crucial as power generation infrastructure faces increasing bottlenecks.
In response to this demand, the supply chain is also strengthening. Industry-wide CoWoS wafer capacity is expected to increase significantly, with TSMC accounting for over 80% of this capacity. NVIDIA’s upcoming Blackwell Ultra, featuring advanced HBM3E technology, is expected to further boost ASP and mix, reinforcing our optimistic projections.
Detailed Analysis and Future Projections
Our analysis reveals that large-scale orders for NVL72/36 systems have continued unabated since our last model update in late April. This indicates a substantial shift among hyperscale customers towards acquiring full-rack systems, translating to a richer revenue mix for NVIDIA. We now project around 69,000 NVL systems will ship in CY25, an increase from the previous estimate of 52,000.
Further, the industry’s CoWoS wafer capacity is projected to exit CY24/CY25 at approximately 45/65 kilowatts per month, marking a 170% and 45% year-over-year increase, respectively. This supply chain capacity expansion supports our revised revenue projections, with each additional 5,000 NVL shipments for CY25 potentially adding $9 billion in revenue and $0.20 in EPS.
Moreover, the forecasted growth in hyperscaler capital expenditure for CY24/CY25 aligns closely with NVIDIA’s projected revenue growth, providing additional support for our above-consensus estimates.
Valuation and Estimate Revisions
Our new $150 price target is based on a 28x P/E multiple applied to the average CY25/CY26E non-GAAP EPS of $5.25. This reflects our confidence in NVIDIA’s ability to maintain strong performance and growth momentum over the next few years.
For CY24, our estimates remain unchanged. However, for CY25, we are revising total revenue upwards to $204.4 billion from $177.9 billion, primarily driven by increased data center revenue. Similarly, for CY26, we are raising total revenue projections to $224.8 billion from $180.2 billion. Consequently, we have updated our EPS estimates for CY25/CY26 from $4.22/$4.27 to $4.95/$5.55.
Upside and Downside Scenarios
In our upside scenario, we model total revenue for CY25/CY26 to reach $210.8 billion and $242.6 billion, respectively, with gaming and data center segments showing substantial growth. This scenario assumes net income margins of 63% and 65%, respectively, resulting in an average EPS of $5.83 and a potential upside valuation of $187.
Conversely, in our downside scenario, total revenue is modeled at $182.7 billion for CY25 and $192.7 billion for CY26, with more modest growth rates. This scenario assumes net income margins of 54% and 56%, leading to an average EPS of $4.15 and a downside valuation of $99.
Overall, our comprehensive analysis supports a strong outlook for NVIDIA, justifying our revised price target and Buy rating. The company’s robust demand, enhanced supply chain capabilities, and strategic product mix position it well for continued growth and value creation.
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