NVIDIA: New Headwinds vs. Major Upside Opportunity

Key Points

• NVIDIA's latest challenges are manageable, especially as surging demand for its more advanced chips continues to outpace supply.
• Analysts trim their targets in Q2, creating a headwind for the market, but the stock price has overcorrected. 
• The Q1 results and guidance update will be a powerful catalyst for this market. 

The latest development in Trump’s war with China will impact NVIDIA NASDAQ: NVDA in 2025 and beyond, but does not remove the opportunity for share price upside. While sales of the H20 semiconductors have been effectively blocked, analysts estimate that it will have a limited impact on the business. Estimates vary but run in the mid-to-high single digits for EPS, a not insignificant figure for 2025 but not insurmountable over the longer term. 

NVIDIA’s Q1 results will likely impact revenue and earnings, with most of the damage felt in balance sheet charges. This will impact equity but is likely to leave the substantial cash balance unchanged. The longer-lasting impact is reduced sales in China and deleveraging on the bottom line, but lost sales in China may not be a significant concern. 

Demand for Blackwell chips is outpacing production, making the potential shift of H20 capacity to Blackwell a challenge—but one that CEO Jensen Huang likely welcomes.

Analysts Want Clarity; The Export Threat Has a Silver Lining

Analysts have not responded favorably to the new export restrictions and are lowering their price targets. The chatter focuses on the lack of clarity regarding tariffs and trade policy, as well as the potential long-term impact on NVIDIA's results. 

However, not all the commentary is negative. Analysts at UBS point out a silver lining: export restrictions are accelerating the onshoring of semiconductor operations for NVIDIA and its peers. In response, NVIDIA has pledged to invest $500 billion in AI infrastructure over the next four years—a goal that will require massive capital outlays and strategic partnerships. The company aims to achieve 100% domestic production of its Blackwell chips by 2029, supported by collaborations with Taiwan Semiconductor and Foxconn.

The impact on the stock price is a headwind for price action in early Q2, but it has increased potential for a rebound later in the year. Analysts are lowering their price targets, trimming 350 basis points from the consensus reported by MarketBeat, introducing a near-term headwind. However, despite the revision, the consensus still points to a potential 70% upside. The key takeaway for investors is that the recent April price pullback may be an overreaction, pushing the stock below the lower bound of its expected valuation range.

Institutions Enter “Wait-and-See” Mode

The institutions provide a solid support base, owning 65% of the stock, and have provided a tailwind over the past few quarters. Their activity was bullish three of four quarters in 2024, ramped to a multiyear high in the back half, and remained strong in Q1, but there is a change. The activity in Q2 is tepid, the lightest it's been for four quarters, and it is balanced. This suggests that the group has entered a wait-and-see mode ahead of the Q1 earnings release, scheduled for the end of May, and can not be relied on to drive the market. This leaves it susceptible to sharp, unexpected movement and increases the potential for lower lows. 

The outlook for Q1 remains robust. A few analysts trimmed their targets in April, but the majority of revisions since the Q4 2024 release have been positive. They forecast a 65% increase in revenue, a wider margin, and a 50% increase in earnings. As always, the results will drive the immediate market response, but the guidance will indicate the longer-term stock price move. Assuming NVIDIA continues to show high demand for its chips and services, the stock price will likely increase after the release. 

NVIDIA’s stock price action remains promising, despite its weakness in April. The market is pulling back but remains above critical support targets, aligning with an uptrend. NVIDIA’s market will likely retest that level for support, near $85.50, and trigger another rebound when it does. The stock price could rise quickly to $120 in that scenario, and possibly higher if there is also good news. A move below $120 could be trouble, leading to a more profound decline or range-bound trading at depressed levels.