NVIDIA’s Potential Growth Sparked by H20 GPU Approval
BofA Securities analyst Vivek Arya recently reiterated a Buy rating for NVIDIA Corp (NASDAQ: NVDA), setting a price target of $220. This bullish outlook comes ahead of NVIDIA's anticipated second-quarter earnings, underscored by sustained momentum in sales and solid long-term earnings projections.
Anticipated Revenue Surge for NVIDIA
Arya's forecast indicates that NVIDIA could generate second-quarter revenues around $47 billion, surpassing both the $45.8 billion consensus and NVIDIA's self-imposed $45 billion guidance. This revenue growth is attributed to strong performance in Blackwell GPUs and substantial investments in cloud infrastructure.
10% Potential Revenue Increase in Q3
For the third quarter, Arya predicts mid-teens sequential growth to approximately $54 billion, which also exceeds the consensus estimate of $52.5 billion. There’s further upside potential to $57–$60 billion if shipments for the H20 GPUs are allowed to recommence.
Rising Gross Margins and Long-Term Predictions
Gross margins are expected to elevate to 73%–74% by the third quarter, propelled by NVIDIA's robust rack-scale architecture. If the previously written-down H20 inventory valued at approximately $5.5 billion is utilized, margins could see a boost of 200–300 basis points. Arya has also adjusted sales forecasts for fiscal year 2026 (calendar 2025) to a range of $210–$215 billion, with anticipated pro forma EPS climbing to $4.70–$4.80, which is above the consensus of $4.38.
Impact of AI Investments on NVIDIA’s Performance
Arya's projections reflect consistent strength in NVIDIA’s Blackwell and Blackwell Ultra series, stemming from increasing AI-related capital expenditures by key hyperscalers like Alphabet's Google, Meta Platforms, Oracle, and xAI. This diversified clientele hints at a solid upcoming product pipeline, which should enhance profitability while opening doors for potential sales of $5–$10 billion from resumed H20 sales in the latter half of the year.
Challenges Ahead: Regulatory Risks and Competition
While optimism persists around NVIDIA's growth, Arya cautions about potential regulatory challenges affecting H20 shipments due to anticipated security probes in China. Additionally, as local contenders advance, the competitive landscape could shift, necessitating strict adherence to U.S. licensing regarding the shipment of 1-nm or 2-nm chips to maintain NVIDIA's competitive edge over rivals like Advanced Micro Devices.
Investment Trends Supporting Long-Term Growth
Recent robust capital expenditure forecasts from major U.S. hyperscalers bolster Arya's positive long-term perspective. For example, Meta has elevated its projected spend to $100 billion by calendar 2026, up from a previous estimate of $79 billion, signifying increased investment in server technologies. Financing these expansions, Microsoft noted that their spending is directly linked to secured contracts, aligning with overall trends benefiting NVIDIA.
Profit Projections Aligning with Market Growth
Reflecting on these market dynamics, Arya anticipates fiscal year 2027 (calendar 2026) earnings could hover around $7 per share, comparing favorably with a consensus of $5.87. Such growth assumes the total addressable market for AI accelerators expands significantly, projected to increase from $309 billion to $341 billion, proceeding at a 60% year-over-year growth rate. Consequently, NVIDIA could trade at 25 times forward earnings, consistent with its traditional P/E range.
Long-Term EPS Growth Potential
Looking further ahead, Arya suggests NVIDIA could target long-term EPS of $10 per share. He estimates that the company could capture about 10% of the global AI accelerator TAM, citing that NVIDIA has placed additional orders for 300,000 H20 GPU units with Taiwan Semiconductor Manufacturing Co (NYSE: TSM), along with previous orders of 600,000–700,000 units. If U.S. regulators approve these shipments, potential incremental sales from China could range from $6 to $10 billion, translating to an average selling price of around $10,000 per unit.
Investor Outlook on NVIDIA Performance
Despite the rosy expectations, Arya highlighted that some revenue might shift into the next year, with projections of $3–$4 billion potentially delayed due to supply chain ramp-up times. There are ongoing discussions among investors regarding the potential balance between H20 products, particularly concerning the yield challenges associated with standard Blackwell versus Blackwell Ultra series.
NVIDIA Stock Performance Snapshot
At the time of publication, NVIDIA shares have risen by 2.49%, trading at $178.05. This encourages optimism around NVIDIA's near-term outlook as it enters a phase of potential demand expansion driven by technological advancements and strategic market positioning.
Frequently Asked Questions
What is NVIDIA's current stock price?
NVIDIA's stock is trading at $178.05, showing a gain of 2.49% at the time of reporting.
What factors are influencing NVIDIA's revenue growth?
Strong sales of Blackwell GPUs and increasing demand from cloud infrastructure investments are key factors driving NVIDIA's revenue growth.
How do analysts predict NVIDIA's EPS growth?
Analysts project NVIDIA's earnings per share could approach $7 in fiscal 2027, with long-term targets around $10 per share.
What risks does NVIDIA face regarding the H20 GPU shipments?
NVIDIA could encounter regulatory risks connected to security checks in China, impacting H20 GPU sales and market competitiveness.
How are AI capital expenditures affecting NVIDIA's outlook?
Increased AI-related spending by major companies is enhancing NVIDIA's product pipeline and sales potential, particularly among hyperscalers.
