Analyst forecasts a surprising source of revenue upside for chipmaker Nvidia
Sales of Nvidia 's revamped "made for China" artificial intelligence chip may exceed downbeat expectations, according to new Wall Street research — a potentially meaningful development for the top-performing Club stock. Demand for one of Nvidia's China-specific H20 chips is "much higher than anticipated" and could generate between $9 billion and $12 billion in incremental revenues this year, analysts at KeyBanc Capital Markets said in a note to clients on Sunday. Nvidia's companywide sales for the 12 months ended in January 2025 are currently projected to be nearly $111 billion, according to consensus estimates compiled by FactSet. That implies more than 80% growth from its prior fiscal year . "We know the China business has fallen off a cliff, so any good news there is a positive surprise," the Club's director of portfolio analysis, Jeff Marks, said Monday in reaction to the KeyBanc note. Still, we're not banking on a pickup in China anytime soon, and the company may not need it just yet considering how strong demand for its chips is elsewhere in the world. Other Wall Street analysts in recent weeks offered different views on the state of Nvidia's China-specific AI chips. For example, Wolfe Research said the H20 "has yet to gain significant traction" with customers, in a note to clients dated March 22. Shares of Nvidia were lower by about 0.9% Monday, to roughly $872 each. Year to date, the stock is up nearly 76%, the most of any Club holding. Nvidia has been sampling AI chips designed to comply with U.S. government export restrictions to Chinese customers since last fall. But questions had swirled about whether those customers wanted the processors due to their lower computational power compared with top-end chips made available to American tech giants like Microsoft , Amazon and Meta Platforms . In January, The Wall Street Journal, citing people familiar with the matter, reported that Alibaba and Tencent told Nvidia they intended to order fewer of its throttled-back chips than previously planned. Those original plans were set before the U.S. government in October implemented more strict rules on AI technology exports, which rendered Nvidia's first made-for-China AI chip too powerful. Nvidia went back to the drawing board and developed a revised suite of products, including the H20, that meet Washington's current performance requirements for AI chips and therefore can be shipped without securing a U.S. government license. The Biden administration has said its limits on AI technology exports to China – first enacted in 2022 then toughened in October – are necessary for national security purposes. NVDA 1Y mountain Nvidia's stock performance over the past 12 months. Nvidia has seen its business boom and its stock price soar since late 2022 when the launch of ChatGPT sparked a wave of investment in AI technology. Nvidia is by far the leading maker of AI chips, and fervent demand for its processors in the U.S. and other countries has allowed the company to shake off the recent hit to its China business and grow its total sales at an impressive clip. Nvidia's long-term opportunity in the world's second-largest economy remains uncertain, though, because additional geopolitical obstacles could arise and competition from Chinese companies such as Huawei could grow more pronounced in the coming years. Fostering a domestic chip industry has been a key priority for Chinese President Xi Jinping. Chinese customers historically contributed between 20% and 25% of Nvidia's data center business, the company has said. But in the three months that ended in January, that dropped to a mid-single-digit percentage of Nvidia's $18.4 billion data center revenue due to the latest export controls taking effect, management said on its February earnings call . Nvidia said it expected China's contribution to data center sales to be in a similar range in the current quarter, which ends in a few weeks. "After that, hopefully, we can go compete for our business and do our best. And we'll see how it turns out," CEO Jensen Huang said at the time. Based on its quarterly supply chain checks, KeyBanc said it may turn out better than expected due to a "significant increase" in demand for the H20. The firm previously estimated orders for the chips to be between 150,000 and 200,000 in 2024. Now, KeyBanc revised its forecast higher to between 600,000 and 800,000, analysts said, leading to the projections for $9 billion to $12 billion in additional revenues this year. On Sunday, KeyBanc raised its price target on Nvidia to $1,200 per share from $1,100, citing what it sees as stronger-than-expected H20 demand and robust interest for Nvidia's recently announced GB200 server systems. The product, which uses the Blackwell architecture and incorporates multiple kinds of processors for AI computing, was unveiled at Nvidia's anticipated GTC conference last month. In explaining its price-target bump, KeyBanc also pointed to Nvidia's plans around production capacity with its chipmaking partner, Taiwan Semiconductor Manufacturing Company, as a sign AI-linked revenues will grow again next year. (Jim Cramer's Charitable Trust is long NVDA, MSFT, AMZN and META. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. 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Visitors at the Nvidia stand at the 2022 Apsara Conference in Hangzhou, China, Nov 3, 2022. Nvidia Stock Soar | Future Publishing | Getty Images