US China Tensions And Supply Risks Will Limit Prospects

Key Takeaways

• Geopolitical tensions, export restrictions, and supply chain challenges threaten NVIDIA's growth and create long-term earnings volatility across key markets and product lines.
  
• Dependence on major customers and rising competition from custom solutions put pressure on margins, necessitating successful innovation to sustain market leadership.
  
• Strong AI market leadership, diversified product expansion, and a robust developer ecosystem are driving sustained growth, resilient margins, and reduced business cyclicality.

Catalysts

A computing infrastructure company, provides graphics and compute and networking solutions in the United States, Singapore, Taiwan, China, Hong Kong, and internationally.

• Export restrictions and ongoing geopolitical tensions, particularly between the U.S. and China, have already halted and could further limit NVIDIA's ability to access and grow in the world's second-largest data center and AI computing market, putting billions in projected revenue at risk for multiple years ahead.
  
• The concentration of data center revenue among a small number of hyperscale cloud providers and sovereign projects exposes NVIDIA to heightened risk from customer consolidation, vertical integration, or abrupt shifts in procurement strategies, which could lead to sudden slowdowns in top-line growth, increased pricing pressure, or outright loss of business.
  
• Escalating investments in annual product cycles and continuous capacity expansion, as described by the rapid transitions from Hopper to Blackwell and then Rubin platforms, substantially raise research and development as well as inventory costs, resulting in sustained operating expense inflation that may compress net margins if new products fail to deliver expected step-function revenue growth.
  
• Intensifying competition from custom ASICs and rival chipmakers threatens both NVIDIA's dominant GPU market share and pricing power in accelerated computing, as hyperscalers increasingly develop and deploy proprietary silicon to reduce long-term dependency on NVIDIA, undermining the company's ability to maintain high gross margins and long-term earnings growth.
  
• Supply chain complexity, rising capital intensity, and the increased risk of global semiconductor disruptions-driven by factors such as power availability, fabrication bottlenecks, and component shortages-may cause production inconsistencies, delayed shipments, and cost overruns, resulting in unpredictable earnings volatility and hampering NVIDIA's ability to meet persistent demand.

NVIDIA Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on NVIDIA compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming NVIDIA's revenue will grow by 17.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 52.4% today to 65.6% in 3 years time.
• The bearish analysts expect earnings to reach $177.1 billion (and earnings per share of $7.21) by about September 2028, up from $86.6 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 27.0x on those 2028 earnings, down from 49.7x today. This future PE is lower than the current PE for the US Semiconductor industry at 33.5x.
• Analysts expect the number of shares outstanding to decline by 0.94% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.97%, as per the Simply Wall St company report.

NVIDIA Future Earnings Per Share Growth

Risks

• Global AI infrastructure spending is forecasted at three to four trillion dollars by the end of the decade, with NVIDIA well positioned to capture a large share of this build-out due to its leadership in both compute and networking, which creates a strong long-term runway for revenue growth and earnings.
  
• Rapid adoption of full-stack AI solutions including Blackwell and Rubin platforms, which offer order of magnitude performance and energy efficiency gains, is driving repeat buying across hyperscalers, cloud providers, and enterprises, supporting recurring high-margin product cycles and boosting both revenue and gross margins.
  
• The CUDA software platform, combined with ongoing broad developer ecosystem engagement and continuous innovation, delivers a defensible moat and high switching costs, likely leading to sustained market share, healthy pricing power, and strong net margin resilience.
  
• Expansion into adjacent secular growth areas such as robotics, automotive, professional visualization, and sovereign AI is diversifying NVIDIA's end markets, resulting in more stable and less cyclical revenue streams that support multi-year earnings visibility.
  
• Networking solutions, with products like NVLink, InfiniBand, and Spectrum-XGS, are experiencing explosive, near triple-digit annual growth as AI factory scale and interconnect demand expands, which is transforming NVIDIA into a multi-pronged infrastructure provider and elevating both revenue growth and margin profile over the long term.

Valuation

• The assumed bearish price target for NVIDIA is $152.39, which represents two standard deviations below the consensus price target of $207.54. This valuation is based on what can be assumed as the expectations of NVIDIA's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $270.0, and the most bearish reporting a price target of just $100.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $269.9 billion, earnings will come to $177.1 billion, and it would be trading on a PE ratio of 27.0x, assuming you use a discount rate of 10.0%.
• Given the current share price of $177.27, the bearish analyst price target of $152.39 is 16.3% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.