Nvidia (NVDA) -) shares powered higher Monday after analysts at KeyBanc Capital Markets and HSBC boosted their price targets on the AI chipmaker ahead of its highly anticipated fiscal-second-quarter earnings later this week.
KeyBanc's John Vinh added $70 to his target for Nvidia, taking it to $620 a share, while keeping an overweight rating in place. He expects quarterly results and near-term guidance meaningfully above consensus expectations based on surging demand and improving supply chains.
HSBC analyst Frank Lee also lifted his Nvidia price target, taking it to $780 per share -- the second highest on Wall Street --- citing "strong demand that continues to outpace supply, especially with regard to AI GPU shipments."
Vinh noted that rival Advanced Micro Devices (AMD) -), which is rolling out its generative AI accelerator MI300X chip, the linchpin of its AI technology strategy, is facing near-term supply pressures owing to capacity issues at Taiwan Semiconductor, (TSM) -) the market leader in so-called CoWoS packaging.
AMD CEO Lisa Su said the MI300X and its sister chip, the MI300A, will hold significantly more memory, which will allow customers to design and maintain large-language AI systems similar to ChatGPT for less money in a market it sees growing to around $150 billion by 2027.
However chip-on-wafer-on-substrate, or CoWoS, a crucial component of AI chipmaking, has been in high demand this year as companies such as Nvidia, Broadcom (AVGO) -), Amazon (AMZN) -) and others ramp up production to meet surging end-market interest.
Nvidia Struggles to Find Key Chip-Packaging Tech
TSMC has been struggling to meet that demand surge, forcing Nvidia -- which has already secured around 40% of TSMC's CoWoS capacity for this year -- to source the high end packaging technology elsewhere, including Tempe, Arizona-based Amkor Technology and Taiwan-based United Microelectronics Corp. (UMC) -).
"We believe Nvidia should benefit from incremental CoWoS capacity coming online at Amkor in (fiscal Q3) in addition to TSMC," Vinh said, noting achievable sales targets of $12.5 billion for this quarter and $14 billion for the next, including $10 billion of data center chip sales.
"Additionally, we believe Nvidia has been able to secure incremental capacity at TSMC as a result of the pushout of the ramp of AMD's MI300X," Vinh said. "Nvidia is best-positioned fundamentally, in our view, to monetize outsized compute demand from generative AI; new product ramps in data center and incremental capacity coming online in 2H/2024."
Nvidia shares were marked 5.5% higher in early afternoon trading Monday to change hands at $456.52 each. The stock hit an all-time closing high of $474.97 each on July 18.
Nvidia will report its second-quarter earnings after the close of trading on Wednesday, Aug. 23, with indications suggesting it will report a bottom line of $2.07 per share on revenue of $11.131 billion.
Earlier this spring Nvidia forecast current-quarter revenue of around $11 billion, more than 50% ahead of Wall Street estimates, with a gross margin of around 70%. That likely equates to earnings in the region of $2.04 a share.
UBS Earlier Boosted Its Price Target on Nvidia
Earlier this month, UBS analyst Timothy Arcuri lifted his price target on Nvidia to $540 a share, calling the group a "kingmaker" in the AI space. But he noted that while "demand will dictate Nvidia's long-term AI revenue opportunity, [supply] should be the primary determinant for its data center revenue at least through C2024."
"Nvidia is quite literally serving as 'kingmaker' as a huge wave of capital and new financing vehicles are chasing new AI software and specialized cloud infrastructure models while enterprises are still very early in a struggle to access enough capacity to build out AI at scale," Arcuri said.
KeyBanc's Vinh, meanwhile, said that Nvidia could offset some of the AI capacity headwinds with incremental demand from China, where its lower-end AI chip, the L40S, is likely to see solid near-term gains.
"Given L40S meets the performance threshold of export restriction and doesn't require CoWoS packaging, combined with favorable pricing (est. $7K-$8K/GPU), we expect this lineup can incrementally fulfill some of the pent-up GPU demand in the near term, particularly in China," Vinh said.
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