New Street Research has raised its rating on Nvidia (NASDAQ:NVDA) stock to a Buy rating with a target price of $120.
The move comes after the chipmaker’s shares declined by 26% since their peak in June, underperforming other semiconductor stocks tied to data center AI.
“We find the correction healthy overall, recognize some limited and tactical headwinds specific to Nvidia, but overall see the stock moves as an opportunity to gain more exposure,” analysts at New Street Research said.
The Information reported last week about a potential delay of Nvidia's Blackwell chip by three months due to design flaws, pushing volume shipments to Q1 2025 and contributing to the stock’s declines this week.
New Street’s note explains that Blackwell integrates two large dies interconnected at 10TB/s using TSMC’s CoWoS-L packaging technology, which has encountered ramp-up challenges and may require redesign.
To mitigate this delay, Nvidia can extend the lifecycle of its Hopper chip, which uses the more mature CoWoS-S packaging and is easier to produce in larger volumes. Moreover, Nvidia can release a simplified variant of the Blackwell chip using a single die.
“While it would have lower performance than the dual-die Blackwell SKUs, it would still be an uplift vs. Hopper,” analysts explained.
More broadly, they maintain a positive outlook on AI darling’s market position, expecting the company to continue dominating the datacenter XPU market.
“We see in-house XPUs doing well against GPUs and being deployed in millions across gigantic in-house captive markets,” they wrote, adding that AMD (NASDAQ:AMD) could become a worthy challenger to Nvidia, in addition to some startups.
However, “none of these players will put material pressure on Nvidia’s dominant position,” New Street emphasizes.
“We have done a lot of work showing that the best outcome for an in-house XPU or an alternative GPU is to be competitive, i.e. on par with an Nvidia GPU, plus or minus one product cycle. That’s enough to win a right to exist, not a right to win,” analysts continued.
The delay in Blackwell could paradoxically ease supply chain constraints for Nvidia, as the H100 chip, which requires less CoWoS capacity and HBM content, can be ramped up to meet demand. On the supply front, Samsung and Hynix are both guiding for more than double HBM supply, and TSMC is set to at least double its CoWoS capacity next year.
Furthermore, expectations for hyperscaler capex in 2025 have increased, now implying 13% growth, with AI infrastructure capex expected to grow by at least 30%. This supports New Street Research's forecast that AI semiconductor spending could grow by 50% annually.
Valuation concerns have also been addressed. Nvidia trades at approximately 28x the analysts’ 2025 EPS expectations, compared to a 29x trough multiple during the 2018/19 downcycle.
“In addition to a limited risk of downward revisions, we also see a limited risk of multiple compression.”