Blackwell concerns 'overdone', buy Nvidia stock into earnings: Evercore

Evercore ISI analysts advised investors to buy Nvidia (NASDAQ:NVDA) stock ahead of the chipmaker’s earnings report for the July quarter, stressing that recent concerns over Blackwell delays are “overdone.”

The investment bank notes that demand for Nvidia systems remains strong, citing a 20% quarter-on-quarter surge in hyperscale capital expenditure (CapEx) in Q2 2024. Looking ahead, CapEx is expected to grow a further 8% and 10% in Q3 and Q4, respectively.

Earlier this month, reports suggested that Nvidia’s much-anticipated Blackwell system, which includes its next-generation AI chips, could face a delay of up to three months. The news raised investors' concerns about the sustainability of NVIDIA's stock's upward trajectory and was a contributing factor to the recent sell-off.

After analyzing three previous instances of Nvidia product disruptions in 2008, 2022, and 2023, Evercore analysts conclude that while a negative announcement could lead to a short-term 5%-to-10% drop in the stock, NVDA has consistently demonstrated its ability to swiftly develop alternative solutions.

“Furthermore, should a delay manifest, we believe demand is so strong, particularly at Tier 2 and 3 CSPs (Cloud Service Providers) and enterprises, that current generation Hopper solutions would be purchased even if Blackwell was pushed,” analysts noted.

Moreover, they observe that Nvidia shares have experienced two significant corrections, each over 50%, in recent history: one in the second half of 2018, occurring one quarter before peak capital expenditure (CapEx) when the stock was trading at a price-to-earnings (P/E) ratio of 38, and another in 2021-22, four quarters before peak CapEx, starting with a P/E of 67.

With peak CapEx forecasted for the fourth quarter of 2025 and NVIDIA's current P/E at 39, the analysts do not anticipate a significant sell-off in the stock before mid-2025.

Overall, Evercore’s team continues to view NVDA as its “Top Tectonic Shift in Computing pick,” positioned to capture up to 80% of the value created in the parallel processing era.

Analysts believe the AI darling could accumulate more than $10 of earnings per share (EPS) power by 2030 “and that it could ultimately grow to be 10-15% weighting of the S&P 500 Index.”

Near-term, Evercore raises its third-quarter and 2024 estimates for Nvidia and lift its target price on the stock from $145 to $150.