NVIDIA Nears Buy Zone as Rumors Swirl About China Chip Deal

There is hope that NVIDIA (NASDAQ: NVDA) will soon be selling its H200 chips to China.

Bloomberg broke a story in which sources close to the inside let it be known that the possibility was on the table, and it is a significant catalyst for the stock’s price.

As it stands, NVIDIA didn't log any GPU or other significant sales to China in its recently reported quarter, so any H200 sales would be a bonus. The caveat is that, until the sales are logged and reported, the only thing that can be counted on is that this news vector will drive market volatility. 

Does China need NVIDIA? 

The answer is yes. While Huawei and other semiconductor labs are working hard to produce an AI-specific GPU comparable to the H200, none are yet available. The H200 offers superior performance and capability, making it likely to be in high demand.

Historically, China has accounted for as much as 13% to 15% of annualized revenue, suggesting the impact of sales would move the needle regarding expectations and outlook.

At 13% of sales, NVIDIA’s fiscal Q3 results might have been as much as $7.4 billion more than what was reported, equating to an additional 2100 basis points in growth. 

Of course, trade relations with China (and Trump-related volatility) are never that cut-and-dry. China, through various agencies, has made it clear that foreign (U.S.) semiconductors and technology are not acceptable. Not only are state-funded data centers now unable to use foreign products, but those under construction are opting for locally sourced technology instead.

The takeaway is that China is doing exactly what the U.S. is doing: securing a domestic technology supply chain with a moat around it. NVIDIA might be allowed to sell its chips to China, but that doesn’t mean China has to buy them. 

China Sales Would Boost NVDA, But Aren’t Necessary

The addition of sales to China would be bullish for NVIDIA’s stock price, but it doesn’t need them for its stock price to continue rising.

The latest earnings report was another blowout, aligning with the trend of significant outperformance and even stronger guidance, suggesting NVIDIA’s AI business is bigger than thought, growing faster than expected, and accelerating following a period of “normalization.”

The critical takeaway is that the revenue and earnings outlook continues to swell, driving a robustly bullish market dynamic. 

NVIDIA may be a crowded trade, but analyst trends suggest it could be much more crowded.

They include a spike in coverage following the FYQ3 release, rock-solid support from a market-leading 52 analysts, and a healthy uptrend in the consensus price target.

The consensus, as of late November, which forecasts a 45% upside from critical support targets, increased by 11% following the release and is up 30% in the preceding three months and 55% in the preceding 12 months.

The trends also point to the high-end range, which puts this market at $352, representing a 95% upside from the critical support target, and this is not an unreasonable forecast. 

NVIDIA’s valuation metrics suggest it can rise by at least 100% over the next few years, and possibly by 200% or more. Trading at 38x, NVIDIA’s stock isn’t exactly cheap, but this is pricing in a lot of growth. The consensus forecast puts NVDA stock at only 8x its 20235 forecasts, which may be low.

NVIDIA’s share price could rise by almost 200% just to align with the S&P 500 and then another 10,000 basis points to align with its historical P/E range and the P/E range of typical, blue-chip tech leaders. 

NVDA Stock Pulls Back to the Buy Zone

Macroeconomic headwinds and misplaced fears of an AI bubble bursting helped NVIDIA’s stock price correct in November.

However, the trend is up, and the indications are strong, suggesting the market will at least retest the recent highs, which is the critical resistance point. If NVIDIA’s stock can’t set a new high quickly, it may become range-bound until another potent catalyst emerges. 

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The article "NVIDIA Nears Buy Zone as Rumors Swirl About China Chip Deal" first appeared on MarketBeat.