Why two Wall Street firms remain cautious on Nvidia despite AI boom

Despite Nvidia's strong Q1 earnings and optimistic guidance fueled by the AI boom, HSBC and D.A. Davidson maintain neutral ratings on the stock, citing concerns over U.S. export restrictions to China. D.A. Davidson estimates that these restrictions could hand a $50 billion Chinese market opportunity to domestic manufacturers like Huawei, while HSBC anticipates supply chain issues will persist, projecting a potential 8% downside with a $125 price target; Nvidia CEO Jensen Huang expects an $8 billion sales hit this quarter due to these restrictions.

Analysis

Nvidia (NVDA) has demonstrated significant momentum, with its stock appreciating approximately 45% from its year-to-date low in April, buoyed by a 90-day US-China trade truce, a first-quarter earnings report that surpassed Street estimates, and optimistic future guidance. Despite these positive catalysts and the broader AI tailwind, Wall Street firms HSBC and D.A. Davidson maintain cautious "hold" or "neutral" ratings. D.A. Davidson, while raising its price target on NVDA to $135—aligning with current trading levels—identifies U.S. chip export regulations targeting China as the primary risk, believing the market underestimates China's contribution to Nvidia's revenue. The firm highlights that these restrictions, potentially costing Nvidia a $50 billion market opportunity now accessible to domestic manufacturers like Huawei, could also foster long-term competition from Huawei outside China, especially as Nvidia's CEO Jensen Huang confirmed no alternative product currently exists for the Chinese market. Similarly, HSBC analyst Frank Lee remains more bearish, setting a revised price target of $125, implying an approximate 8.0% downside, due to concerns over China's advancing AI capabilities and potential supply chain mismatches, even if Nvidia eventually re-enters the Chinese AI chip market despite H20 restrictions. Reinforcing these concerns, Nvidia's CEO anticipates an $8.0 billion negative impact on sales in the current financial quarter stemming from these U.S. export restrictions, while the stock's 0.03% dividend yield offers negligible support. The prevailing sentiment surrounding these specific analyst outlooks, as reflected in associated signals, is mildly negative and cautious.

Key Decisions for Investors

• Investors should closely monitor developments in U.S.-China trade relations and chip export control policies, as these regulatory factors are identified as the primary overhang on Nvidia's growth trajectory in the significant Chinese market.
• Scrutinize upcoming earnings releases for the quantifiable impact of Chinese export restrictions on revenue, market share, and profitability, particularly in relation to the company's $8 billion projected sales hit for the current quarter.
• Evaluate the evolving competitive landscape, particularly the risk that prolonged restrictions could accelerate the capabilities of Chinese competitors like Huawei, potentially challenging Nvidia's global AI market share.
• Considering the cautious analyst ratings, with D.A. Davidson's $135 price target suggesting limited immediate upside and HSBC's $125 target indicating potential downside from current levels, investors should weigh the strong AI growth narrative against these material geopolitical and competitive risks before increasing exposure.