Analysts Say China Restrictions Are ‘Irrelevant’ for Nvidia Stock, So Buy NVDA Now
Nvidia’s (NVDA) China problem isn’t a one-way issue. While the U.S. wants to restrict export of Nvidia chips to China to stop the Asian giant from acquiring advanced technology, China also places restrictions on using Nvidia and U.S.-made chips. On Nov. 4, the Chinese government asked all data centers that were less than 30% complete to not buy chips from U.S. companies anymore and cancel any pending contracts.
But amidst increasing AI spending, analysts believe China revenues may not even be relevant anymore.
Wolfe Research recently said that Nvidia could bring in as much as $300 billion next year with Blackwell and Rubin chip sales. Despite China setbacks, this is 20% higher than the firm’s previous forecast. The research firm believes $8 in earnings per share in 2026 is doable, giving the company a forward earnings multiple of under 25x.
Vivek Arya of Bank of America also had a similar view based on healthy AI spending. China news is dominating headlines, but investors need to look at the $500 billion in data center orders, which could help the company achieve 70% year-over-year (YOY) earnings growth. Citi analyst Atif Malik echoed similar sentiments and pointed out that the firm’s forecasts assume zero China sales, something increasingly common among analysts looking at U.S.-based chipmakers.
Headquartered in Santa Clara, California, Nvidia is well-known for making graphics processing units (GPUs) for the gaming, crypto, and AI industries. The company is a global leader when it comes to AI infrastructure, computing, and networking infrastructure and has a great foundation to play leading roles in electric vehicles and robotics in the future.
The stock is known for outperforming the broader market, so it doesn’t come as a surprise to see its 29.58% one-year performance compared to the S&P 500 Index’s ($SPX) 14.4%. As the leader in AI infrastructure, this dominance is likely to continue in the near future.
It doesn’t make any sense to compare Nvidia’s valuation to the sector average or even its closest peers. The company is in a league of its own. However, it may be worth comparing the stock to its own 5-year average. For example, on a forward price-earnings basis, the stock is trading at 58.47x, 22% below the 5-year average. The forward price-sales ratio of 20.28x is 15% higher than the 5-year average, which is understandable considering many investors expect sales to set new records in the coming years. The stock is by no means undervalued, but it wouldn’t be fair to term such a unique company as overvalued either.
Nvidia reported its fiscal Q2 earnings on Aug. 27 and the market didn’t react positively despite a 5.32% earnings surprise. The company reported a top line of $46.74 billion vs. the consensus estimate of $46.06 billion. EPS clocked in at $1.05 against estimates of $1.01. Although the guidance topped Wall Street estimates, investors had priced in even better results, which caused a downturn in the days that followed.
In the upcoming Q3 earnings on Nov. 19, similar sentiments can be expected. On the previous earnings call, management gave revenue guidance of $54 billion, a $7 billion sequential growth! Since the company is actively looking to use its cash for upcoming opportunities in AI, investments are likely to increase in the coming quarters.
In response to a question from Bank of America’s Vivek Arya, management had suggested they were working on finding a way to sell the H20 chips to China. However, we now know that it may not be of any use to expect anything positive on that front. A $50 billion opportunity in China could be out of Jensen Huang’s reach, unless there is some resolution on the geopolitical front. We will know more about that from the man himself on Nov. 19.
Of the 47 analysts that are covering the Nvidia stock, 40 have a “Strong Buy” rating. No wonder recent commentary coming out of Wall Street is bullish. Nvidia is simply the best AI infrastructure play out there for many. A lone “Strong Sell” rating stands out as the exception.
Looking at the target price assigned to the stock, one can’t help but notice considerable upside potential, not usual for a stock that is often dubbed “overvalued” by commentators. The mean target price of $234.12 offers 20% upside from the current levels, while the highest target price of $350 will net investors a handsome 80% gain!
On the date of publication, Jabran Kundi did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com