Piper Sandler warns: In the event of extreme market conditions, NVIDIA's data center business may lose nearly $10 billion
Piper Sandler recently warned that under extreme circumstances of capital expenditure cuts and weak demand in the Chinese market, NVIDIA's data center business annual revenue could lose nearly $9.8 billion. Analysts pointed out that if customers continue to reduce capital expenditures, earnings per share are expected to be affected by about $0.40. Nevertheless, the firm maintains an "overweight" rating on NVIDIA, with a target price of $150, and provided stock price forecasts under different scenarios
According to the Zhitong Finance APP, Piper Sandler recently warned that in the worst-case scenario of reduced capital expenditures and continued weak demand in the Chinese market, NVIDIA's (NVDA.US) data center business annual revenue could be impacted by as much as $9.8 billion.
The firm conducted a sensitivity analysis on NVIDIA's data center business to assess the potential negative impact if customers reduce capital expenditures over the next year.
Piper Sandler analysts noted in a report: "Overall, based on our extreme scenario estimates, approximately 6.45% of total revenue in NVIDIA's data center end market could be affected by capital expenditure cuts."
This extreme forecast is based on two key assumptions: NVIDIA's customer base continues to reduce capital expenditures, and the Chinese market fails to recover.
The analysts stated: "We consider this a 'worst-case scenario' analysis, assuming that capital expenditures are indeed cut and the Chinese business does not recover."
According to Piper Sandler's model, the anticipated $9.8 billion revenue impact would have a negative effect of about $0.40 on earnings per share.
Although the firm maintains an "overweight" rating on NVIDIA with a target price of $150, it provided significantly different scenario forecasts: "In the worst-case scenario using a 25 times price-to-earnings ratio (industry trough multiple), we arrive at a target stock price of $76.25; while in the best-case scenario, also using a 25 times multiple, the target stock price would be $126.75."
The analysts pointed out that the firm has excluded revenue from the Chinese business in its public model since NVIDIA submitted its 8-K filing on April 15. This means that in their case, potential revenue losses will not double-count the risk exposure in China. Piper Sandler stated, "It should be noted that our current public forecast has excluded Chinese revenue, which means the model has proactively avoided the risks of the Chinese market," and the related scenario analysis will not result in double counting of risk factors
