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Dow Jones NewsMay 5, 4:31 PM UTC
DJ Nvidia Can Count On Tech Giants' Spending as 'Tough Regulations' Hit China Sales -- Barrons.com
By Angela Palumbo
Spending on artificial intelligence by so-called hyperscalers should continue to benefit Nvidia, helping to offset the damage from restrictions on chip exports, Melius Research says.
All of the Magnificent Seven companies except for Nvidia have reported their most recent financial results this earnings season. A common theme was that regardless of uncertainty about the economic outlook, Microsoft, Amazon.com, Meta Platforms, and Alphabet all plan to continue spending big on AI.
That is a good sign for Nvidia, Melius Research analyst Ben Reitzes wrote in a research note on Monday.
"The AI race is particularly existential for hyperscalers as each seeks some form of 'Universal Assistant' that can do it all (Project Astra for Google, MetaAI, Copilot) and ultimately corral more ad, cloud and subscription revenues," Reitzes wrote. He said that even if the hyperscalers, as the tech giants are known, make their own custom semiconductors, he believes spending on Nvidia's chips needs to "grow rapidly," to help them achieve their goals.
"Nvidia has some amazing new products (GB300 and Vera Rubin), which should drive growth even amidst tough regulations," he added.
Nvidia shares have dropped 15% this year, compared with a 3.8% decline in the S&P 500. Part of the reason is concern over tighter U.S. restrictions on chip exports to China. BofA Securities analyst Vivek Arya wrote on Monday that as a result of the rules, Nvidia could be facing a 20% reduction in the long-term $500 billion total addressable market for its hardware.
"We learned that $15-$20 billion of run-rate sales (about 10% of Data Center segment) into China have evaporated -- so upside in Hyperscaler capex in 2025 and 2026 is even more important now," Reitzes wrote.
He maintained his Buy rating on Nvidia and $150 price target, which implies a 31% increase to the stock's closing price of $114.50 on Friday. Shares of Nvidia were down 0.8% on Monday to $113.52.
Write to Angela Palumbo at angela.palumbo@dowjones.com
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May 05, 2025 12:31 ET (16:31 GMT)
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