UBS Forecasts Strong Nvidia Earnings and Blackwell Ramp-Up in 2025

Nvidia (NASDAQ: NVDA) is expected to report strong earnings for the fourth quarter of 2024, with analysts bullish on the AI chipmaker's stock. UBS analysts have reiterated their $175 price target, suggesting that booming demand for the company's advanced chips as Big Tech firms ramp up spending on AI infrastructure could lead to another strong quarter. Nvidia is projected to post record quarterly revenue of $38.32 billion, up 73% year-over-year, and net income is expected to climb to $21.08 billion, from $12.84 billion a year earlier.



UBS analysts also noted that investor expectations have crept up recently, and supply chain improvements could mean higher sales of Nvidia's Blackwell line. UBS nearly doubled its estimate for Blackwell's contribution to fourth-quarter revenue to $9 billion, up from $5 billion previously. Oppenheimer analysts indicated that the rapid rise of Chinese AI startup DeepSeek could ultimately prove positive for the chipmaker, as competition pushes Nvidia's American clients to step up their efforts in the AI race instead of pulling back.



Despite a DeepSeek-driven dip last month amid concerns about Big Tech's AI spending, shares of Nvidia have gained about three-quarters of their value over the past 12 months. The S&P 500 and tech-heavy Nasdaq drifted lower on Wednesday as investors braced for NVIDIA’s second-quarter earnings results, which were released after US markets closed. NVIDIA, viewed as a bellwether for the growth story of artificial intelligence (AI) and the overall market, delivered an earnings beat, surpassing consensus estimates for both earnings per share and revenue.

Nvidia's forward guidance points to strong demand for AI chips, with CEO Jensen Huang continuing to highlight strong demand from its customers. This is consistent with the strong spending commitments from Microsoft, Alphabet, Amazon, and Meta in recent quarters. UBS now expects the combined capex of these big tech companies to grow 50% to $222 billion in 2024, and another 20% to $267 billion in 2025. Assuming peak capex intensity for each company, the combined capex could potentially reach $280 billion. Their willingness to invest will likely continue to support strong growth in AI semis, especially in the segments of GPUs, custom chips, and high-bandwidth memory chips.

AI adoption and monetization trends are promising, with cloud revenue growth across big tech accelerating for the fourth straight quarter during the July-September period, and margins remaining strong. With big tech’s management teams highlighting increasing AI adoption and the business value the technology has brought, we continue to believe that we’re still in the early stages of a major investment boom and technological advances that may fundamentally affect all economic sectors. We estimate that AI value creation could amount to $1.16 trillion by 2027.

Trump’s tariffs should have limited impact on AI’s growth story, with new US tariff policies expected to be unveiled in the first 100 days of Trump’s second term and likely take effect in the second half of 2025. Should the effective US tariff rate on Chinese imports be raised substantially and some universal tariffs be introduced on tech imports, the sector is not immune. However, we think several tech segments may get tariff reliefs or exemptions, and the AI supply chain has the lowest dependency on China at around just 5%. Most of the chip manufacturing and final assembly is done globally, including some domestically in the US.

In conclusion, UBS expects strong Nvidia earnings and forecasts a Blackwell ramp-up in 2025, driven by strong demand for AI chips, improved cooling solutions, higher chip prices, and expansion into new markets. While there are potential challenges and risks associated with the Blackwell ramp-up, Nvidia's strong position in the AI market and continued investment in research and development should help the company navigate these challenges and maintain its competitive edge. The anticipated growth in Nvidia's Data Center segment, driven by AI demand and the Blackwell rollout, significantly influences the company's overall valuation and investment appeal, with a high valuation reflecting investors' confidence in the company's growth prospects.