Nvidia's China Strategy and New Chip Releases Set to Drive Momentum Amid High Market Expectations

In the lead-up to Nvidia's (NVDA.US) announcement of its second fiscal quarter results, Goldman Sachs increased its target stock price from $185 to $200, maintaining a "buy" rating. Analyst James Schneider highlighted that despite already high market expectations, Nvidia is poised to surpass projections and potentially raise its guidance. Key catalysts for stock fluctuations, he pointed out, will likely include developments in their China business and changes in profit margins.

Schneider highlighted three focal points for the earnings call. First is the production schedule of the Blackwell chips in the second half of the year, and the progress of the next-generation Rubin chip architecture slated for a 2026 release. The second point of interest, according to the Goldman report, concerns the timeline for the H20 chip, which has been modified to comply with U.S. export restrictions and is aimed at the Chinese market. The revenue potential and market resilience in China are crucial metrics to watch.

The third area of focus is on the gross margin trends, particularly whether Nvidia is able to release profit potential by addressing H20 chip inventory. Nvidia's stock has notably risen approximately 34% this year, demanding robust earnings support to sustain its current valuation level.

Market expectations for the forthcoming earnings are high. Based on a FactSet survey, analysts anticipate Nvidia to achieve revenues of $45.7 billion, with earnings per share projected at $1.

Amid challenges related to export controls and cybersecurity concerns, attention has significantly focused on Nvidia’s H20 chip. Despite bouts of security scrutiny, including concerns over potential backdoor vulnerabilities which led to discussions with regulatory authorities in China, the H20 chip remains a pivotal part of Nvidia’s offerings in the AI space in China. Originally designed to adhere to export restrictions, it has been critical for AI model training and inference in China, gaining favor among multiple Chinese enterprises.

Nvidia faces a challenging landscape in China, including previous U.S. government restrictions on its H20 chips and recent cybersecurity debates. Despite such hurdles, the company has resumed supply to the Chinese market, highlighting its ongoing navigation of a geopolitically complex environment.