Picture this: UBS sends out a glowing update on Nvidia Corporation (NASDAQ:NVDA), pumping up NVDA’s earnings outlook and setting a shiny new price target of $850. However, beneath the surface, there’s cause for concern that’s enough to give investors sleepless nights. Let’s peel back the layers.
UBS Sheds Light on Lead Times
What’s the buzz? UBS dropped a bombshell in its rosy note by revealing a significant drop in Nvidia’s lead times to just 3-4 months, down from 8-11 months in the recent past. Now, that’s quite the seismic shift, isn’t it?
Here’s the deal: Nvidia raked in an eye-popping $14.5 billion from datacenter hardware sales in Q3 of fiscal 2024, with nearly half a million A100 and H100 GPUs hitting the market. Demand soared to such heights that servers using H100 GPUs are backordered for 36 to 52 weeks, as per Omdia.
That means, in quick succession, Nvidia’s lead times compressed from 8-11 months to a mere 3-4 months.
Implications of Shrinking Lead Times
What’s the big deal with lead times plummeting? Well, it indicates that Nvidia’s production capacity is outpacing future orders. This could spell trouble, as shipments may dip once the backlog evaporates, which would signal the end of the growth spree.
This, in turn, could trigger a sequential drop in revenues, and let’s face it – the stock isn’t primed for growth to come to a screeching halt.
Impacts on Short-Term Growth and Earnings
It’s worth noting that while diminished lead times could accelerate the demise of Nvidia’s growth, they are also turbocharging the current revenue and earnings bonanza. This means we might yet witness an astronomical revenue and EPS beat when Q4 FY2024 results roll in. However, the fun and games may not last long.
A specter might be looming: the market tends to get wind of trouble before it hits. It’s hard to ignore the signs pointing to impending stormy weather.
Growth Beyond Nvidia’s Peak
One silver lining here is that Nvidia hitting peak revenues doesn’t spell doomsday for AI capacity; it will continue to expand. However, the waters look choppy for Nvidia’s individual prospects.
Final Verdict
The drop in Nvidia’s lead times does raise a red flag for the near future. The consensus doesn’t factor in any speed bumps for Nvidia, which makes the stock vulnerable. And while Nvidia might keep beating estimates for another quarter or two, the unending growth story might soon reach its expiration date.
With Nvidia ranked as the third-largest market cap in the US, riding high on relentless growth, it’s no harm in keeping a watchful eye. The storm might be just around the corner.
