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HSBC’s Cautious Outlook on NVIDIA Amidst Regulatory Changes
The outgoing Biden administration’s tightening of regulations surrounding the artificial intelligence (AI) chip market is impacting several companies, most notably NVIDIA. A recent report from HSBC offers a sobering assessment of NVIDIA’s immediate business prospects, particularly as it faces challenges in expanding its total addressable market (TAM).
HSBC analyst Frank Lee highlights that NVIDIA must significantly bolster the rollout of its GB300/B300 platform during the second half of FY26 to offset what could be a weak performance in the first half of that fiscal year. For context, NVIDIA’s FY2026 is expected to align closely with the calendar year 2025.
In light of dwindling sales momentum in the first half of CY2025, Lee has revised his sales projections for NVIDIA. He anticipates the company will deliver approximately 35,000 AI server racks equivalent to NVL72, down from the previous estimate of 41,500 racks. This revision leads to a lowered forecast for full-year datacenter revenues, now estimated at around $236 billion, compared to an earlier prediction of $253 billion.
Bear Case Scenarios and Earnings Projections
Lee’s analysis includes a bear case scenario, which suggests that NVIDIA’s sales could range between 20,000 and 25,000 NVL racks, alongside an earnings per share (EPS) estimate between $4.84 and $5.14. This estimate remains notably higher—by 8% to 14%—than the current consensus of $4.50.
“We lower our FY26 EPS estimates by 6% to reflect slower H1 FY26 Blackwell ramp.”
In response to these forecasts, HSBC has adjusted its target price for NVIDIA shares to USD 185, down from USD 195, while maintaining a target FY26 price-to-earnings (PE) ratio of 32x.
The Impact of Export Controls on AI Chips
These revisions arise in an environment marked by stricter export controls on AI chips. Recently, the Biden administration implemented significant restrictions on AI chip sales, especially concerning NVIDIA and its competitors. Nevertheless, some allowances remain for allied nations and specific entities.
- No sales restrictions apply to key allies, including the UK, Japan, and the Netherlands.
- Major cloud providers like Google, Amazon, and Microsoft can purchase unlimited GPUs, provided they retain at least half of their computational power within the U.S.
- There are no restrictions on orders that equate to the computational power of 1,700 advanced GPUs.
- Entities that meet trust standards and are located within allied jurisdictions can secure a “Universal Verified End User”(UVEU) status, allowing them to place 7% of their total computational resources globally.
- Non-allied entities that meet certain trust requirements can obtain a “National Verified End User”(VEU) status, granting them access to 320,000 advanced GPUs over a two-year period.
- Entities without VEU status can still access the equivalent buying power of 50,000 advanced GPUs per country.
- Governments satisfying specific criteria can gain access to 100,000 advanced GPUs per country by coordinating with the U.S.
Given the profound implications these regulations have on sales, NVIDIA has publicly criticized the Biden administration’s AI diffusion rules, arguing that the measures could hinder innovation and negatively impact the U.S. economy, potentially benefiting geopolitical adversaries.
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