HSBC Downgrades NVIDIA to Hold, Citing 27% Stock Decline and Slowing Pricing Power
1min read HSBC has downgraded its rating for nvidia from "Buy" to "Hold" and significantly reduced its target price. This move comes as NVIDIA's stock has declined by 27% since the beginning of the year, raising questions about the sustainability of its upward momentum. hsbc analyst Frank Lee expressed caution about NVIDIA's future prospects, citing limited upside potential.
Lee noted that while NVIDIA has consistently exceeded earnings expectations, the margin by which it has done so has been narrowing over the past three quarters. This trend is attributed to uncertainties in the production capacity of its Blackwell supply chain. More critically, Lee believes that NVIDIA's pricing power for its GPU products is slowing down, a factor that has been a key driver of its earnings surprises in recent quarters.
Despite the significant increase in the average selling price of NVIDIA's GPUs, from around $1,000 for gaming GPUs to $13,500 for the first-generation AI GPU platform Ampere, the subsequent platforms Hopper and Blackwell have seen more modest price increases of 96% and 51%, respectively. The Blackwell NVL72 rack architecture's pricing has surged from the previous HGX platform's range of $212,000 to $320,000 to $262,350. However, there has been no significant increase in average selling prices between the B200 and B300 GPUs, as well as between the GB200 and GB300 NVL72 rack architectures. This lack of price growth may be due to the focus of the B300/GB300 upgrades on incremental improvements such as a slight increase in memory from HBM3E 8hi to HBM3E 12hi, and enhanced system stability aimed at addressing overheating and low yield issues present in the B200/GB200 models.
Based on the expectation of a decline in server rack shipments, Lee has reduced his earnings per share estimates for NVIDIA's fiscal years 2026 and 2027 by 8% and 18%, respectively, to $4.72 and $5.76. These estimates are in line with market consensus. Consequently, HSBC has downgraded NVIDIA's stock rating from "Buy" to "Hold" and lowered its target price from $175 to $120.
