This Thursday, NVIDIA's performance exceeding expectations is a certainty, and the market is most concerned about the ramp-up speed of Blackwell's production capacity

Author: Dong Jing

Source: Hard AI

This week, global market attention will once again focus on AI giant NVIDIA, which will announce its third-quarter financial report this Thursday. JP Morgan stated that NVIDIA is very likely to once again perform a "beat-and-raise" scenario.

On November 18, according to Hard AI, JP Morgan pointed out in its latest research report that the current factor determining NVIDIA's growth rate is not demand, but the capacity limits of its vast supply chain. It is expected that third-quarter revenue will exceed the market's general expectation of about $55 billion, and it has provided a performance guidance of up to $63 billion to $64 billion, significantly higher than the market expectation of $61.5 billion.

The research report stated that another solid "beat-and-raise" is anticipated, and the extent of the upward space will mainly depend on NVIDIA's supply chain's capacity expansion within three months.

According to JP Morgan's analysis, the demand for AI computing power continues to significantly exceed supply, and NVIDIA's largest customer base, including hyperscale cloud service providers, emerging cloud computing companies, and AI laboratories, still faces computing power bottlenecks. Regarding supply chain capacity, the bank expects that the shipment volume of Blackwell/Blackwell Ultra racks in the third quarter achieved approximately 50% quarter-on-quarter growth, reaching a scale of about 10,000 racks. Looking ahead, this growth momentum is expected to continue in Q4.

The research report pointed out that for the conference call following the financial report, the market's focus will be on management's statements regarding the growth trajectory of Blackwell/Blackwell Ultra products in the first half of fiscal year 2027, as well as responses to key issues such as the sustainability of AI spending, power limitations of data center infrastructure, and the impact of component cost inflation on gross margins.

"Supply Shortage" Remains the Main Theme, Performance Exceeding Expectations is Highly Likely

The bank clearly stated at the beginning of the report that the current market discussion about NVIDIA is no longer focused on whether demand is healthy, but rather whether its supply chain can keep up with customers' ambitious AI computing power deployment plans.

JP Morgan stated that as AI data center spending enters the "initial stage" of a multi-year growth cycle, the demand for AI computing power still "significantly exceeds supply." Major customers, including hyperscale cloud service providers, emerging cloud service providers, and AI research institutions, still face a computing power shortage after more than two years of AI investment frenzy.

Against this backdrop, JP Morgan predicts that NVIDIA's quarterly financial report will once again exceed Wall Street expectations. Specifically, the bank expects that for the third quarter of fiscal year 2026 ending in October, revenue will exceed the general expectation of about $55 billion, and it expects the company to guide fourth-quarter revenue to a range of $63 billion to $64 billion, higher than the market consensus expectation of $61.5 billion.

The report emphasizes that achieving "performance exceeding expectations and guidance upgrades" again is "in the cards," and the extent of the outperformance will entirely depend on the scale of capacity increases in its supply chain within three months.

Supply Chain Capacity: The Only "Brake" on Growth

Since demand is not an issue, supply is the only limiting factor.

The report provides a detailed analysis of NVIDIA's supply chain execution. Over the past 3-4 months, its partners have performed strongly in terms of shipments of Blackwell/Blackwell Ultra racks, with an estimated approximately 50% quarter-on-quarter growth in shipments for the third quarter, reaching a scale of about 10,000 racks.

Looking ahead, this growth momentum is expected to continue into Q4. JP Morgan forecasts that NVIDIA's total rack shipments for the entire fiscal year 2026 will reach between 28,000 and 30,000 racks.

Although additional 3nm and CoWoS chip capacity within the next 12 months will provide some upside for GPU shipments, the firm firmly believes that supply chain capacity will remain the key limiting factor for NVIDIA's revenue growth, a situation that will persist until 2026.

However, the firm provided an extremely optimistic long-term signal in the report.

JP Morgan believes that NVIDIA's supply chain has sufficient capacity to support a doubling of rack shipments year-on-year in fiscal year 2027/calendar year 2026, reaching between 60,000 and 70,000 racks.

Most critically, according to information disclosed by NVIDIA at the GTC conference in October, its backlog for the calendar year 2026 has already exceeded 70,000 racks. This means that the orders on hand have surpassed the maximum production capacity for the entire next year, providing a high degree of certainty for future growth.

Based on this, JP Morgan maintains an "Overweight" rating on NVIDIA, with a target price of $215, representing a 15% upside from the current level.

Beyond the Financial Numbers: Four Long-Term Variables Investors Should Focus On

JP Morgan believes that for the upcoming earnings call, the stock price reaction may depend more on management's articulation of future outlook rather than just the numbers. Investors should closely monitor how management responds to the following four core concerns:

• The capacity ramp-up trajectory of Blackwell/Blackwell Ultra: The speed of capacity expansion entering the first half of 2026 (i.e., the first half of NVIDIA's fiscal year 2027).
• The sustainability of AI spending: In this regard, a recent in-depth report from JP Morgan's global team concludes that funding sources in the AI sector will remain abundant until 2030
• Impact of Power Restrictions: It is expected that approximately 120 gigawatts (GW) of data center power capacity will come online globally in the next five years, but the delivery cycle for new gas turbines has surged to 3-4 years, while the construction cycle for nuclear power plants exceeds 10 years, making electricity a real bottleneck.
• Impact of Component Cost Inflation on Gross Margin: Particularly the pressure from rising prices of raw materials such as memory and chips.

It is noteworthy that the report provides a detailed breakdown of the gross margin issue, which is of great concern to investors.

JP Morgan believes that the rising prices of LPDDR memory are a greater pressure point than HBM memory. Although HBM4 is expected to have a 30-40% increase in average selling price (ASP) compared to HBM3e, NVIDIA can incorporate this cost into the pricing scheme of its next-generation Rubin platform in advance.

However, for LPDDR memory, the company may have to accept variable market prices—even long-term supply agreements (LTA) can only guarantee supply volume, but cannot lock in prices.

Nevertheless, JP Morgan believes that NVIDIA still has the ability to achieve its gross margin target in the mid-range of 70% by the end of fiscal year 2026, but given the inflation of input costs, there will be very limited room for further improvement in gross margin at that level