'Full hit from China': Analysts are staying bullish on Nvidia ahead of earnings, but tariffs loom large

Yahoo

27-05-2025

Nvidia will deliver its first-quarter earnings report after the closing bell on Wednesday.
Wall Street is upbeat on the premier AI chip maker, but is cautious on guidance.
Analysts see a potential hit from tariffs, with activity in China in focus for analysts.
Investors are gearing up for Nvidia to report earnings for the first quarter this week, with questions hanging over the chip maker related to the impact of tariffs and its business in China.
The Jensen Huang-led firm will report financial results for the first three months of the year after the closing bell on Wednesday. Analysts expect the chip giant to report $43.2 billion in revenue and earnings per share of $0.75
The outlook for Nvidia's earnings on Wall Street is generally upbeat while uncertainty is brewing for the latter part of this year, particularly as tariffs and trade policy restrictions hang in the balance.
Nvidia recently warned of a $5.5 billion hit from trade restrictions after the Trump administration banned sales of its H20 chip in the nation.
At a recent news conference in Taiwan, CEO Jensen Huang said the company's market share in China was around 50%, down from 95% four years ago.
Here's what analysts see ahead for the mega-cap tech firm:
Nvidia should post a "modest" sales beat in the first quarter, but analysts at Bank of America said the guidance for the second quarter could be "messy. " They pointed to the impact of tariffs on Nvidia's shipments from China.
The bank estimated that Nvidia could see a $4 billion to $5 billion headwind on shipments from China in the second quarter. Sales guidance for the second quarter could be revised down to $41 billion, down from the $46 billion consensus estimate.
Nvidia could also lower its guidance on returns related to its partnership with GM, analysts said. They also pointed to the firm's recent $5.5 billion hit from export controls.
Nvidia's total sales for the 2026 fiscal year could come in around 6% below consensus, while earnings could come in around 10% below consensus, BofA estimated.
"Despite these near-term headwinds, we maintain Buy on NVDA, a top sector pick given its unique leverage to the global AI deployment cycle and possibility for China sales recovery on new redesigned/compliant products later in the year," analysts wrote.
The bank has a price target of $160 a share, implying 18% upside from current levels.
Morgan Stanley said it is eyeing challenges ahead for Nvidia, though the company remains its "top pick" in the semiconductor industry.
Analysts recently cut their estimates after Nvidia was banned from selling its H20 chips in China. The restrictions will likely hold back revenues for the quarter, even as Nvidia saw "significant improvements" in shipments for its GB200 chip in April, the bank wrote in a recent note.
"With all that said, we would continue to keep near term expectations in check," analysts wrote.
The bank has an"overweight" rating on the stock and a $160 price target, implying 18% upside from current levels.
Piper Sandler said it expects Nvidia to miss on revenue for the first quarter. That's due to uncertainties related to the US economy, tariffs, and the ban on its H20 chip in China.
"All in all, we think that NVDA is poised to be flat to down into the print this week," analysts wrote.
Still, the firm sees Nvidia benefiting from a strong second half of the year. That's due to strong capital expenditures from other tech firms and an improving macroeconomic backdrop.
Nvidia's recent deal with a Saudi Arabian tech firm could also provide a tailwind in the second half, analysts said.
"We advise investors to weather the uncertainty and stay long the stock as this is likely largely the last wave of negative news for NVDA this year."
The firm reiterated its "overweight" rating on Nvidia and issued a $150 price target, implying 11% upside from current levels.
Restrictions on chip sales in China will likely remain an "overhang" on Nvidia until new rules are implemented, analysts at DA Davidson wrote. New restrictions on chips sold in China could also come "any day," they added, despite the Trump administration recently rolling back Biden's AI diffusion rule.
"Core Hyperscalers" — firms like Microsoft and Amazon that make up nearly half of Nvidia's business — also look like they're starting to stabilize their demand for Nvidia products.
Demand from Nvidia's other customers, like neocloud firms, looks like it could hinge on debt dynamics at the individual companies, as well as new regulations imposed on chip sales in China.
The firm reiterated its "neutral" rating on the stock and issued a $120 price target, which they said was dependent on factors like how regulation in China will shake out and if some of Nvidia's neocloud customers face borrowing challenges. The price target implies 11% downside from the current levels.
While earnings for Nvidia should be "fine" for the first quarter, guidance will likely be lowered in the second quarter to account for a hit to the company's revenue in China, analysts estimated.
"With regard to the F2Q26 we are slightly lowering estimates to account for a full hit from China," the firm wrote in a note this month.
Still, demand for Nvidia's products looks like it will remain on a solid trajectory in the coming years, the firm said, pointing to Nvidia's recent Saudi Arabia deal.
"Given speculation of a US/China trade deal and news that Nvidia expects to re-enter this $50B+ market with a less performant chip, it likely only gets better from here," analysts wrote in a note. "While the near-term brings uncertainties, we are confident that we will have more clarity on rules soon," they added.
The research firm reiterated its "buy" rating on the stock and issued a price target of $150 a share, implying 11% upside from current levels.
Angelo Zino, a senior equity strategist at CFRA Research, said the outlook for Nvidia had "considerably improved" in recent weeks, pointing to progress between the US and China in securing a framework trade deal and the US getting rid of its AI diffusion rule, which would have imposed restrictions on Nvidia's chip sales to China.
Nvidia's recent Saudi Arabia deal also gives the company "strategic importance" in the US's trade negotiations with other countries, Zino wrote in a note to clients.
Mega-cap tech firms also look poised to keep spending on AI. Google, Amazon, Meta, and other tech giants have said they would increase their capital expenditures in 2025, largely to invest in AI and data centers.
"We believe NVDA's content growth story in data centers will extend through at least 2027, supported by its product pipeline," Zino wrote. "While quarterly variability is a risk, we view any pullbacks as enhanced buying opportunities given the better policy backdrop/customer visibility," he added.
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