According to UBS, NVIDIA Stock Can Scale the 'Wall of Worry'

Nvidia Corp. remains a favorite on Wall Street, though UBS analyst Timothy Arcuri has observed a recent decline in sentiment. Investors have been diversifying their interests within the technology sector, shifting attention to software stocks and less prominent chip companies like Advanced Micro Devices Inc. (AMD). This move comes amidst concerns from some analysts about the potentially excessive spending on artificial intelligence (AI) relative to the revenue AI is projected to generate.

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Despite these concerns, Arcuri remains optimistic about Nvidia’s future. He acknowledges the "wall of worry" that investors see but believes Nvidia can overcome these challenges, particularly with the introduction of its new Blackwell chip lineup set to ship later this year.

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Arcuri’s recent supply-chain research suggests that demand for Blackwell rack-scale systems is strong, driven by their power efficiency, which could result in a more profitable revenue mix compared to Nvidia’s previous Hopper chip lineup.

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Arcuri has consistently provided estimates that surpass market expectations, and his current forecasts continue this trend. He anticipates Nvidia will achieve $204 billion in revenue and $4.95 per share in adjusted earnings for the next calendar year. These figures are up from his previous estimates of $178 billion in revenue and $4.22 per share. In comparison, FactSet’s consensus estimates are lower, at $159 billion in revenue and $3.57 in adjusted earnings per share.

Arcuri also predicts that hyperscalers will increase their capital expenditures at rates similar to Nvidia’s projected revenue growth, further supporting his positive outlook.

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In light of his optimistic projections, Arcuri has raised his price target for Nvidia shares to $150 from $120, maintaining his buy rating. This bullish stance comes as Nvidia’s stock saw a 3.7% rise in morning trading on a strong day for chip stocks. Other semiconductor companies, including AMD, Intel Corp. (INTC), and Super Micro Computer Inc. (SMCI), also experienced significant gains. The PHLX Semiconductor Index (SOX) rose by 1.7%.

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The recent investor rotation into different technology sectors highlights the dynamic nature of the market. As investors seek opportunities beyond the heavily favored areas from the first half of the year, they are paying closer attention to sectors like software and lesser-known chip manufacturers. This shift is partly driven by a reassessment of the potential returns on investments in AI-related expenditures.

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Nvidia’s ability to maintain investor confidence amidst these shifts is bolstered by its innovative product lineup. The forthcoming Blackwell chips are expected to provide substantial performance improvements and greater efficiency, which could drive higher adoption rates and revenue growth. Arcuri’s supply-chain insights suggest that these new offerings are already generating strong interest, positioning Nvidia well against its competitors.

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Nvidia’s performance is not only crucial for its own valuation but also has broader implications for the semiconductor industry. The company’s ability to meet and exceed revenue expectations can influence market sentiment and investment trends across the sector. As hyperscalers and other large technology firms ramp up their capital expenditures, Nvidia’s success can set a positive precedent for other chip manufacturers.

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While Nvidia’s stock has faced some recent sentiment challenges, UBS analyst Timothy Arcuri’s positive outlook and revised projections provide a counterbalance to investor concerns. The anticipated strong demand for the new Blackwell chip lineup, combined with Arcuri’s raised revenue and earnings estimates, supports a bullish stance on Nvidia’s future. As the market continues to evolve, Nvidia’s ability to innovate and capture market share will be key to sustaining its favorable position on Wall Street.

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