Oppenheimer analyst Rick Schafer maintained Nvidia Corp
Rick Schafer of Oppenheimer has reiterated his bullish stance on Nvidia ahead of the company's third-quarter earnings report scheduled for November 20. Schafer anticipates substantial upside in Nvidia's October quarter results and January quarter guidance, driven by consistent demand from cloud service providers (CSPs) and enterprise clients for AI accelerators.
Schafer has revised his estimates upward, citing robust traction for Nvidia's Hopper AI accelerators and the initial ramp-up of the new Blackwell chips, which will likely begin in the fourth quarter.
He projects that Blackwell will contribute several billion dollars in revenue for the January quarter despite ongoing supply constraints related to CoWoS-L capacity.
The analyst foresees a significant acceleration in Blackwell sales by the first quarter (April), with investors modeling between 5-6 million GPUs next year.
In 2025, Schafer expects the product mix to favor drop-in HGX modules and air-cooled NVL36 GB200 racks as they integrate more easily into existing data center infrastructures. He stated that liquid cooling challenges may take time to resolve.
Nvidia's rack-scale solutions, which include CPUs and networking components, could offer a 10 times increase in average selling prices (ASP) compared to standalone modules.
Schafer sees Nvidia's Data Center (DC) segment, which comprises 87% of total revenue, growing 9% quarter-over-quarter (QoQ) and 97% year-over-year (YoY) in the third quarter, led by the H200 chip.
The broader Blackwell product line will likely ramp up in the first quarter, with future iterations like the Blackwell Ultra scheduled for late 2025. Schafer estimates that 60% of the data center sales will come from training, while 40% will be from inference.
He forecasts over $10 billion in sales from sovereign AI projects this year, although this may face long-term risks from potential U.S. export restrictions.
For the Networking segment, accounting for 14% of Nvidia's data center revenue, Schafer projects a 9% QoQ increase and 60% YoY growth, driven by robust Spectrum-X Ethernet switches and DPUs shipments.
He expects Nvidia's next-generation Spectrum-X800 to launch in 2025, catering to large-scale accelerator clusters, followed by the Spectrum-X1600 in 2026.
In the Gaming segment, which makes up 10% of revenue, Schafer anticipates 5% QoQ and 6% YoY growth in the third quarter, fueled by strong sales of discrete PC GPUs.
He highlighted the upcoming launch of Nvidia's 50-series Blackwell GPUs in early 2025, alongside a 3nm PC CPU developed in collaboration with MediaTek.
Schafer estimates Nvidia's free cash flow (FCF) to be $16.5 billion for the third quarter, with $97 billion projected for the full year 2025. He stated that Nvidia has $57.5 billion remaining on its stock buyback authorization, with cash and debt balances of $34.8 billion and $8.5 billion, respectively.
Based on revised earnings estimates, Schafer raised his calendar year 2024, 2025, and 2026 EPS forecasts to $2.85, $4.16, and $5.04, up from previous estimates of $2.80, $3.77, and $4.51.
He also increased his price target for Nvidia stock, citing improved free cash flow and a stronger balance sheet. Nvidia trades 29 times his calendar year 2026 EPS estimate, below its five-year average of 37 times.
Schafer views Nvidia as a long-term buy, highlighting its leading position in AI hardware and software, strong gross and operating margins, and dominant data center ecosystem as core drivers of sustained growth.
Nvidia stock surged 205% year-to-date as U.S. Big Techs splurged on their AI ambitions. Investors can gain exposure to the AI wave through Vanguard S&P 500 ETF
Price Action: NVDA stock traded lower by 0.22% at $146.45 premarket at the last check on Friday.
