Nvidia: Raising Fair Value Estimate to $170 From $140 as Nvidia Is Back in Business in China

Key Morningstar Metrics for Nvidia

• Fair Value Estimate: $170
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Very High

What We Thought of Nvidia’s Earnings

Nvidia announced that the US will reverse course and now approve the sale of H20 graphics processors, or GPUs, into China for artificial intelligence workloads. Sales of the H20 were banned 90 days ago, causing Nvidia to incur a $5.5 billion write-off and miss out on tens of billions of revenue.

Why it matters: We’re pleasantly surprised by the US reversal, as resumption of H20 sales may enable Nvidia to reemerge as the primary, if not dominant, technology provider for China’s AI. The H20 is still throttled down versus Nvidia’s best products but remains in high demand in China.

• We assume the reversal stays in place going forward, although we are cautiously, rather than wholly, optimistic about the latest restrictions. If retained, we think Nvidia will remain more dominant in AI than ever, supporting its outstanding revenue growth and gross margins.

The bottom line: We raise our fair value estimate for wide-moat Nvidia to $170 from $140. We maintain our Very High fair value Uncertainty Rating as the outlook for China, and AI demand in general, is bright but fluid and may reverse rapidly and without much warning.

• Nvidia’s stock price now appears fairly valued to us as we reinsert H20 revenue into our model, assume that China revenue is greater than our pre-ban expectations, and boost our longer-term gross margin assumptions.
• We are reinserting $5 billion of revenue to the October and January quarters, and about $30 billion into fiscal 2027 and future years. We expect a near-term rush of H20 orders later this year and assume that Chinese AI firms buy H20’s with confidence in the years ahead.

Long view: The US reversal may signal a change in overall AI policy versus China, as AMD will also receive a similar benefit.

• Rather than block US AI accelerator sales into China, thus enabling Chinese AI firms to support other vendors like Huawei, these firms might remain dependent on the hardware, software, and networking provided by US firms like Nvidia.