On Sunday, HSBC analyst Frank Lee adjusted the price target for Nvidia shares, bringing it down to $185 from the previous target of $195. Despite the reduction, the analyst maintained a Buy rating on the stock. Lee's assessment came with the perspective that NVIDIA may face challenges in the first half of fiscal year 2026, necessitating a robust second-half performance to meet market expectations.

Chip stocks dropped in premarket trading Monday. STMicroelectronics fell 4%; Super Micro Computer, Arm, TSMC, ASML, Broadcom, Nvidia fell 3%; Micron, AMD, and Qualcomm fell 2%; Intel fell 1%.

The revision was primarily due to a lowered forecast for datacenter revenue in fiscal year 2026, which Lee now sets at $236 billion, down from the initial $253 billion estimate. This projection is based on the expectation of 35,000 NVL 72 equivalent AI server racks, a decrease from the previously assumed 41.5 thousand racks. However, even with this revised estimate, HSBC's forecast remains 28% higher than the Visible Alpha consensus forecast of $184 billion. With a market capitalization of $3.33 trillion, NVIDIA remains a dominant force in the semiconductor industry.

Lee also provided insights into bear-case scenarios, indicating that if NVIDIA were to deploy only 20,000 to 25,000 NVL racks in fiscal year 2026, the earnings per share (EPS) would still be 8% to 14% above the consensus estimate of $4.50. Despite a 6% cut in the fiscal year 2026 EPS estimates to reflect a slower ramp-up of the Blackwell platform in the first half, HSBC's projected EPS of $5.74 still stands 28% above the consensus.

The analyst's decision to lower the target price while maintaining the same target fiscal year 2026 price-to-earnings ratio of 32x is a reflection of the revised EPS forecast. Lee's commentary underscores the pressures NVIDIA may face in delivering a strong performance in the latter half of fiscal year 2026 to align with the expectations set forth.