TLDR
- Taiwan Semiconductor considering joint venture with Nvidia to run Intel’s fab operations
- Nvidia stock showing mixed performance, currently below 200-day moving average
- China export restrictions pose potential risks, with concern over complete H20 chip ban
- Nvidia beat Q4 earnings with $0.89 EPS on $39.33 billion in sales
- Foxconn expects AI server revenue to double in Q1, signaling continued demand for Nvidia GPUs
Nvidia’s stock has been on a roller coaster ride lately, with shares jumping 6% on Wednesday following reports of a potential joint venture with Taiwan Semiconductor to operate Intel’s fabrication facilities. The news came as a bright spot amid recent underperformance.
The potential joint venture could include other chip designers like Advanced Micro Devices and Broadcom. Taiwan Semi’s stake would reportedly be less than 50%.
This deal would require approval from the Trump administration. Regulatory hurdles remain a key concern for investors.
Nvidia’s recent stock performance has been lackluster. The company has fallen from outperforming 88% of stocks in Investor’s Business Daily’s database to just 47% in four weeks.
The stock currently sits below its 200-day moving average. This technical indicator suggests potential weakness in the near term.
Nvidia’s relative strength line has been declining. This means the stock is underperforming compared to the S&P 500 index.
Nvidia a bargain at current prices
Analysts at Melius Research consider Nvidia stock a bargain at current prices. However, they note near-term challenges related to regulations and geopolitical issues including tariffs.
Another concern is potential margin pressure. As Blackwell chip sales increase, analysts expect margins to dip before recovering later.
For the current quarter, Nvidia has forecast adjusted gross margins of 71%. This remains well above industry averages despite the expected temporary decline.
The broader AI infrastructure market continues to show strength. Oracle recently reported $130 billion in backlog, with CEO Safra Catz noting “enormous” demand.
Broadcom posted impressive results with AI revenue growing 77% year-over-year to $4.1 billion. The company expects this figure to reach $4.4 billion in the current quarter.
Broadcom’s top three customers have ambitious plans. They’re aiming for 1 million chip clusters by 2027, which could benefit Nvidia’s business.
Morgan Stanley analysts predict that custom AI chips, Broadcom’s specialty, will grow from 11% to 15% of the AI chip market by 2030. The majority of the remaining market is expected to go to Nvidia’s GPUs.
Export restrictions to China present another challenge. Investors worry about a potential complete ban on H20 chips to China, though currently these exports comply with regulations.
Bernstein analyst Stacey Rasgon argues a complete ban would “make zero sense.” Such a move would essentially hand over China’s AI market to local rivals like Huawei.
Despite these concerns, Nvidia’s fourth quarter results were strong. The company earned $0.89 per share on $39.33 billion in sales, beating analyst estimates of $0.85 EPS and $38.1 billion in revenue.
Nvidia was the only Magnificent Seven company to report a revenue surprise this earnings season. This speaks to the company’s continued execution amid challenges.
U.S. business grew by 35%
The company’s U.S. business grew 35% sequentially. This is particularly important given the concerns about tariffs and trade restrictions.
Regional sales breakdown showed the U.S. accounting for 47% of total sales. Taiwan represented 16%, while China made up 13% of sales.
Nvidia noted that three customers now account for more than 10% of revenue. This concentration may present both opportunities and risks going forward.
The Blackwell chip family has quickly become Nvidia’s fastest-growing segment. Management highlighted this during their recent earnings call.
Investors are eagerly awaiting Nvidia’s AI developers’ conference on March 17. The company plans to introduce Blackwell Ultra and Rubin, its next-generation chips, at this event.
Strong second half of the year expected
Mizuho analysts advise patience through May while Nvidia works through “growing pains” in shipping its complex servers. They expect strong sales in the second half of the year.
Mizuho projects Nvidia will capture 44% of the AI server market. Thanks to pricing power, they estimate Nvidia could generate $260 billion of the $350 billion AI accelerator chip market by 2027.
Looking ahead, Foxconn’s recent earnings report provided a positive signal. The Taiwanese electronics maker expects its AI server revenue to surpass 1 trillion New Taiwan dollars ($30 billion) in 2025.
Foxconn is building what it calls the world’s largest manufacturing site for servers housing Nvidia’s GB200 Superchips in Mexico. This suggests continued robust demand for Nvidia’s products.
Foxconn Chairman Young Liu expects first-quarter AI server revenue to double both quarter-over-quarter and year-over-year. This bodes well for Nvidia’s near-term prospects despite broader market concerns.
Analyst maintains a Buy rating
BofA Securities analyst Vivek Arya maintains a Buy rating and $200 price target on Nvidia stock. He expects “attractive albeit well-expected updates” on future chip generations at next week’s conference.
In premarket trading Friday, Nvidia shares climbed 1.7% to $117.49 amid a broader market rally. This suggests investors may be regaining confidence in the AI trade despite recent volatility.
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