TLDR:
- NVIDIA faces pressure from high expectations as beating earnings estimates alone no longer drives stock growth, with recent EPS surprises of 8.5% and 5.6% failing to boost the stock
- The company’s gross margin has declined from 78% to 74.5% over recent quarters, with concerns about maintaining margins through 2026
- Amazon’s upcoming Trainium 3 chip, set for late 2025 release, promises twice the speed and 40% better power efficiency, with Apple as a potential customer
- HSBC reduced NVIDIA’s price target by $10 to $175, while maintaining a ‘Buy’ rating, citing supply chain challenges affecting GB200 shipments
- Despite concerns, HSBC projects Q4 FY25 revenue of $40 billion (above $38.2B consensus) and Q1 FY26 revenue of $42.2 billion, supported by B200 GPU sales
NVIDIA Corporation is dealing with supply chain challenges, evolving investor expectations, and emerging competition in the AI chip sector. Recent analyses from major financial institutions highlight both opportunities and obstacles facing the technology giant.
The company’s recent performance reveals a shifting landscape in how the market responds to its earnings.
Despite posting an 8.5% earnings per share surprise in its latest quarter, NVIDIA’s stock showed limited reaction, following a similar pattern from the previous quarter when a 5.6% EPS surprise failed to generate substantial market enthusiasm.
Financial metrics show some concerning trends in NVIDIA’s operational efficiency. The company’s gross margin has experienced a notable decline, dropping from 78% to 74.5% over the past two quarters. Market observers express doubts about NVIDIA’s ability to maintain even mid-70s gross margins through the end of 2026.
HSBC has recently adjusted its outlook on NVIDIA, reducing its price target by $10 to $175. However, the financial institution maintains a ‘Buy’ rating on the stock, basing its target on a price-to-earnings ratio that sits below NVIDIA’s five-year average but remains higher than peak valuations seen among comparable semiconductor companies.
Supply chain disruptions continue to impact NVIDIA’s operations, particularly affecting the shipment of GB200 products. However, HSBC analysts believe the company can offset these challenges through increased sales of B200 GPUs during the first half of fiscal 2026, which should help maintain momentum for the Blackwell platform.
Competition
Amazon has announced its Trainium 3 chip, scheduled for release by the end of 2025. This new processor is reported to deliver twice the speed and 40% better power efficiency compared to its predecessor, utilizing TSMC’s advanced N3 technology for manufacturing.
Adding to the competitive pressure, Apple has been identified as a potential customer for Amazon’s new chip technology, indicating increased competition in the high-performance computing market.
Despite these challenges, HSBC projects strong financial performance for NVIDIA in the near term. The firm estimates fourth-quarter fiscal 2025 revenue will reach $40 billion, exceeding the consensus estimate of $38.2 billion. Looking ahead to the first quarter of fiscal 2026, HSBC forecasts revenue of $42.2 billion.
Increased capital expenditure plans from major cloud service providers are expected to benefit NVIDIA’s growth trajectory. However, HSBC notes that the company’s performance in the latter half of fiscal 2026 will largely depend on the success of its B300/GB300 product roadmap.
The forward price-to-earnings ratio for NVIDIA, looking at the fiscal year ending January 2026, currently stands at approximately 31. This valuation metric reflects both market expectations and ongoing challenges facing the company.
JPMorgan Asset Management’s Kerry Craig has observed that investors are beginning to look beyond the top AI companies, citing valuation and spending concerns following the DeepSeek launch. Nevertheless, Craig maintains an optimistic view on AI as a long-term investment theme.
NVIDIA currently maintains strong institutional support, with 193 hedge funds holding positions in the company. This level of institutional investment suggests continued confidence in NVIDIA’s market position despite current challenges.
Recent developments in the company’s product pipeline show NVIDIA actively working to address market demands. The Blackwell platform, in particular, is expected to play a crucial role in offsetting any slowdown in GB200 deployment.
