NVIDIA Corporation (NASDAQ:NVDA) is set to benefit from the proliferation of artificial intelligence (AI) according to Wedbush Securities, but analysts there are less certain the chip-maker can sidestep the decline in overall IT spending when it reports its fourth quarter earnings for fiscal 2023 after the bell on Wednesday.
In a note to clients, the analysts wrote that they expect AI to benefit the larger semiconductor complex, particularly Nvidia given the dominant position it has established within the data center market.
“Having said this, even if AI spend trends better than overall IT spending in 2023, we are less certain that NVDA can sidestep the downtick we are seeing in general IT budgets by delivering and guiding to accelerating sequential growth through the course of the coming fiscal year,” they wrote.
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“We are concerned that while NVDA’s AI potential remains substantial that expectations may again assume too much, too soon, particularly in light of broader data center spending headwinds.”
The analysts said they see a somewhat similar setup in gaming, with both puts and takes likely to impact Nvidia’s results and guidance.
“Specifically, our conversations have suggested generally robust sales of Nvidia 4000 series parts as the new products have rolled out,” they wrote. “At the same time, a portion of this strength may have been offset by weaker consumption in China as well as softer PC trends.”
The analysts concluded by stating that, given their questions about near-term data center trends and even as Nvidia’s stock has rebounded sharply over the past few months, they remain on the sidelines and retain their ‘Neutral’ rating on the stock.
“We believe the debate around Nvidia remains relatively unchanged; specifically, will AI momentum be enough to offset softer enterprise budgets,” they wrote.
The analysts awarded the stock a price target of US$175, based on a multiple of about 29 times their FY25 estimates, plus net cash.
Nvidia shares were down about 3.4% trading at US$206.75 on Tuesday afternoon.
Contact the author at emily.jarvie@proactiveinvestors.com
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