UBS maintains NVIDIA stock Buy rating, $185 price target

On Monday, UBS analysts, led by Timothy Arcuri, maintained a Buy rating and a $185.00 price target for NVIDIA Corporation (NASDAQ:NVDA), despite concerns surrounding the company's DeepSeek technology. The semiconductor giant, now valued at $2.9 trillion, maintains a "GREAT" financial health rating according to InvestingPro analysis, with a perfect Piotroski Score of 9 indicating exceptional operational efficiency. The analysts addressed several issues that have kept NVIDIA's stock performance stagnant since the last earnings report, attributing the lackluster movement to supply chain disruptions and worries over the production ramp-up of Blackwell server racks.

UBS expressed confidence in NVIDIA's ability to post strong financial results for the fourth quarter of fiscal year January and provide solid first-quarter guidance for April. The firm dismissed the notion of an imminent "air-pocket" in NVIDIA's performance as exaggerated. This confidence appears well-founded, as InvestingPro data shows NVIDIA maintaining impressive gross profit margins of 75.86% and achieving remarkable revenue growth of 152.44% over the last twelve months. Get access to 20+ additional ProTips and comprehensive financial metrics with InvestingPro. They noted an improvement in Blackwell chipset and compute board yields, with a rapidly changing product mix favoring Blackwell over its predecessor, Hopper.

The analysts also highlighted NVIDIA's revenue recognition method, which occurs when original design manufacturers (ODMs) or original equipment manufacturers (OEMs) take possession of the compute boards. This practice, they noted, allows for the leveraging of ODMs or suppliers' working capital and, in some cases, the provision of bridge financing for inventory.

Furthermore, UBS mentioned that the primary hardware issue, related to connector cartridges supplied primarily by Amphenol (NYSE:APH), has seen significant recent improvement. Although the UBS Asia team believes further enhancements are needed for other hardware components, the current progress suggests that inventory buildup at OEMs and ODMs could be temporary. These partners are expected to increase rack assembly rates and expedite shipments to end customers once deployment challenges are resolved.

The report included updates on shipment progress, with Hon Hai (TW:2317), holding approximately 40% of the GB200 rack-scale system market share, confirming the commencement of volume shipments in the second half of January, earlier than expected. Quanta, also responsible for 40% of GB200 rack shipments, indicated volume production would begin in late February or March.

UBS now projects Blackwell revenue to reach approximately $9 billion in the January quarter, up from the previous estimate of $5 billion, with the supply chain capable of supporting up to $14 billion. However, they anticipate a decline in Hopper revenue for January. Overall, UBS's estimates for NVIDIA's fourth-quarter revenue remain at roughly $42 billion, with the data center segment contributing about $38 billion, and first-quarter revenue projections for April are still around $47 billion. While UBS maintains their $185 price target, InvestingPro analysis shows analyst targets ranging from $130 to $220, with a strong consensus recommendation of 1.32 (where 1 is Strong Buy). Discover detailed valuation metrics and comprehensive research reports covering NVIDIA and 1,400+ other stocks with an InvestingPro subscription.

In other recent news, Nvidia Corporation has defended its artificial intelligence strategy following concerns about the Chinese AI startup, DeepSeek. This comes as DeepSeek launched a free assistant that uses less expensive chips and less data, challenging the market expectation that AI will stimulate demand from chipmakers to data centers. Nvidia responded to these events by describing DeepSeek as "an excellent AI advancement and a perfect example of Test Time Scaling."

Meanwhile, Itau BBA reaffirmed its Outperform rating on Nvidia shares with a steady price target of $164. Analyst Thiago Kapulskis from Itau BBA suggested that despite the semiconductor sector's complexity and potential volatility, Nvidia's resilience and long-term prospects remain strong. This is in light of DeepSeek's recent release of an open-source AI model, Janus-Pro-7B, that has reportedly outperformed OpenAI's DALL-E 3 and Stable Diffusion in established benchmarks.

Adding to the developments, DeepSeek announced a significant change in its registration process, now only accepting registrations from users with mainland China mobile (HK:0941) phone numbers. This decision was made after a service outage caused by the app's popularity. Furthermore, Gene Munster of Deepwater Asset Management suggested that the market's response to DeepSeek's progress could be an overreaction, pointing out the underestimated growth in AI infrastructure demand and the potential for increased investment due to advancements in model training efficiency.

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