Nvidia Anticipated to Surge 16% as UBS Highlights Strong Demand for Next-Gen AI Chips

Nvidia (NASDAQ: NVDA) is on the cusp of another significant rally, with UBS predicting a surge of 16% fueled by overwhelming demand for its upcoming Blackwell chip. UBS's recent supply chain assessments reveal "exceedingly robust" interest in Nvidia's next-generation AI-enabled chips, which could drive Nvidia's stock price higher.

In a note released Monday, UBS raised its 12-month price target for Nvidia shares to $150, up from $120. This revised target suggests a potential upside of 16% from the current levels. Analyst Timothy Arcuri from UBS highlighted the strong momentum for the Blackwell rack-scale systems, indicating that demand is far surpassing expectations.

Nvidia's Blackwell, slated to succeed the highly popular H100 chip later this year, promises significant efficiency improvements over the Hopper chipset. Major cloud service providers, known as hyperscalers, are keenly interested in these enhancements. Arcuri noted, "We now believe that an EPS of around $5 could be achievable for 2025, owing to a substantial increase in the order pipeline for NVL72/36 systems."

Should Nvidia achieve this $5 EPS in 2025, its stock would be trading at a forward price-to-earnings ratio of approximately 25.6x. Given Nvidia's rapid growth trajectory, this valuation isn't overly demanding, especially compared to the S&P 500's 21x forward price-to-earnings multiple.

Comparatively, Wall Street's consensus projects that Nvidia will deliver earnings per share of $3.62 in 2025, placing the forward price-to-earnings multiple at a loftier 35x. This discrepancy highlights UBS's more bullish stance. Arcuri elaborated, "We believe that a $150 price target is justifiable and continue to maintain our 'Buy' rating, transitioning our valuation basis to an average of 2025/2026 EPS."

Adding to Nvidia's promising outlook is the growing "wall of worry" among investors. Recently, some of the market's enthusiasm for Nvidia has waned slightly. However, Arcuri sees this as beneficial: "While sentiment towards the stock has dipped a bit in recent weeks, this creates a 'wall of worry' that could be healthy if our positive outlook proves correct."