Stop focusing on demand; the powerful supply chain behind NVIDIA is the key!
The demand for AI is undoubtedly strong, and whether it can effectively expand supply has become the core variable determining NVIDIA's short-term trend. JP Morgan believes that NVIDIA's supply chain partners have demonstrated strong execution capabilities in recent months, with an astonishing ramp-up in production capacity, expecting a quarter-over-quarter shipment increase of about 50% in the third fiscal quarter. On Thursday, a strong "earnings beat and guidance upgrade," along with positive comments about supply capacity, could clear the recent downturn of the stock relative to the semiconductor sector and drive its price increase above historical averages
As NVIDIA's earnings report approaches, Wall Street's focus is shifting from the strength of AI demand to supply capabilities.
According to news from the Chasing Wind Trading Desk, JP Morgan pointed out in a recent report released on November 18 that the market is generally optimistic about NVIDIA's upcoming third-quarter results, which will be announced after the market closes this Wednesday. It is expected to once again exceed market expectations and raise future guidance. However, the report emphasizes that the real highlight of this earnings report, and the key factor determining whether its stock price can rise further, will be NVIDIA and its partners' actual execution in increasing production capacity.
The report believes that strong demand is an undeniable backdrop, but the AI computing power race has entered deep waters, and the ability to effectively expand supply has become the core variable determining NVIDIA's short-term stock price trend. Over the past three months, NVIDIA's stock performance has lagged behind the overall semiconductor industry, and a report that can demonstrate strong execution in the supply chain may become a catalyst to reverse this situation.
From "Demand is No Concern" to "Supply is King"
According to the report's analysis, the current discussions surrounding NVIDIA are no longer focused on the health of the demand environment, but rather on whether its vast supply chain and supporting infrastructure can keep up with customers' ambitious AI computing power deployment plans.
The report clearly states that demand in the AI sector still "significantly exceeds supply." Even after more than two years of this AI data center spending boom, many of NVIDIA's largest customers, including hyperscalers, neoclouds, and AI labs, still face limitations in computing capacity. Analysts believe that this multi-year capital expenditure growth cycle is still in the "early stages."
Against this backdrop of strong demand, the market's focus has naturally shifted from "how many orders" to "how many products can be delivered." Therefore, any comments regarding supply capabilities in NVIDIA's earnings report will be more important than reiterating demand.
Positive Signals from the Supply Side
It is noteworthy that JP Morgan's report conveys positive signals from the supply side. In the face of enormous demand pressure, NVIDIA's supply chain partners have demonstrated "strong execution" in increasing the shipment volume of Blackwell and Blackwell Ultra rack systems over the past three to four months.
Specific data shows that in the third quarter (FQ3), its production achieved approximately 50% quarter-over-quarter (Q/Q) growth, and it is expected to maintain a similar growth rate in the fourth quarter (FQ4).
Additionally, key upstream segments of the supply chain are also responding positively. JP Morgan's Asian semiconductor team has raised its capacity expectations for TSMC. The report points out that in response to the unexpected demand from NVIDIA and key ASIC suppliers, TSMC is accelerating its capacity expansion, expecting to increase its monthly capacity (wfpm) for related processes from 95,000 wafers to 105,000 wafers by the fourth quarter of 2026.
Market Expects Earnings Report Catalyst, Stock Price Likely to Reverse Downtrend?
For investors, positive developments in the supply chain are directly related to NVIDIA's ability to deliver on performance. JP Morgan believes that the potential upside from the earnings report will "depend on how well NVIDIA can scale its supply chain in the short term to keep up with demand."
From the market performance perspective, the options market currently anticipates a price volatility of about 5.9% on NVIDIA's earnings report day, which is consistent with its average actual volatility of 6.0% over the past two years. This indicates that the market is not pricing in extreme optimism or pessimism regarding the earnings report, leaving room for a potential surprise rally.
JP Morgan analysts maintain an "Overweight" rating on NVIDIA, setting a target price of $215 for December 2026. The strategic view of the report suggests that a strong "earnings beat and guidance upgrade," along with positive comments on supply capacity, could clear the recent downtrend of the stock relative to the semiconductor sector and drive its price increase above historical averages.
Based on this logic, the bank's strategists recommend considering buying short-term call option spreads related to NVIDIA to capture this potential upside opportunity.
The above content is from [Chasing Wind Trading Platform](https://mp.weixin.qq.com/s/uua05g5qk-N2J7h91pyqxQ).
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