On the eve of NVIDIA's earnings report, Wall Street raises target price

Given the optimistic expectations for the Blackwell supercycle, Wall Street analysts from firms such as Morgan Stanley and UBS have raised their target prices for NVIDIA ahead of the release of its third-quarter results on November 20.

Specifically:

Melius Research analyst Ben Reitzes: Buy rating, raising target price from $165 to $185;

Piper Sandler analyst Harsh Kumar: Overweight rating, raising target price from $140 to $175;

Morgan Stanley analyst Joseph Moore: Overweight rating, raising target price from $150 to $160;

Mizuho analyst Vijay Rakesh: "Outperform" rating, raising target price from $140 to $165;

UBS analyst Timothy Arcuri: Buy rating, raising target price from $150 to $185;

Analysts generally believe that the development of AI applications is still in its early stages, and the Blackwell cycle will continue to drive NVIDIA's performance upward. Morgan Stanley expects that the new Blackwell product line is likely to boost the company's revenue in the January quarter, with sales expected to be between $5 billion and $6 billion.

Blackwell Cycle Drives NVIDIA Upward

Piper Sandler analyst Harsh Kumar stated in a client report:

Given NVIDIA's dominant position in the AI accelerator space and the upcoming Blackwell architecture, we have listed NVIDIA as our top pick. The total market size for AI accelerators is expected to continue rising by 2025, and NVIDIA is "well-positioned" to capture the largest market share.

Morgan Stanley analyst Joseph Moore anticipates that the Blackwell cycle will continue to drive meaningful increases in the second half:

For the January quarter, the consensus revenue expectation is $36.5 billion, with Blackwell's sales in January potentially reaching nearly $5 billion to $6 billion.

In terms of product demand, while demand for the H100 is weak, demand for the H20 is stronger. This pattern is consistent with previous quarters when NVIDIA's sales exceeded expectations by about $2 billion and are expected to achieve consecutive growth.

Morgan Stanley also predicts that NVIDIA's gross margin will improve in the third quarter:

Although the initial capacity ramp-up for Blackwell starting in January is expected to bring lower margins, the chipmaker previously anticipated that gross margins would decline from 75.7% in the second quarter to 75.0% in the third quarter, a forecast that is overly conservative.

The costs associated with the initial launch of Blackwell will not be repeated, and the resistance in the third quarter is expected to be minimal. Nevertheless, the increase in production of Blackwell and related products brings uncertainty to earnings stability and profit margins, and the company is expected to remain vigilant against further gross margin pressures

Capital Expenditure of AI Infrastructure Spending Companies is "Very Robust"

Melius Research analyst Ben Reitzes stated that NVIDIA is a "once-in-a-lifetime opportunity." In a client report, he mentioned:

As NVIDIA ramps up production of its next-generation AI chip Blackwell, this trend is still in its early stages. AI is still evolving, and compute-intensive catalysts/use cases (such as text-to-video, autonomous agents, self-driving cars, and visual intelligence) are still in their infancy.

Reitzes also mentioned capital expenditure:

The capital expenditure plans of the five major AI infrastructure spending companies are "very robust." Microsoft, Amazon, Meta, Alphabet's Google, and Oracle are projected to see their data center capital expenditures grow by 24% by 2025, reaching $282 billion