Topline
A post-earnings slide and regulatory fears pose an alluring point of entry for investors into Nvidia stock, argued Bank of America analysts, a vote of confidence in the artificial intelligence heavyweight as Nvidia navigates a rare rough patch on the stock market.
Nvidia stock has been in a rare slump this summer.
Key Facts
The Bank of America group led by Vivek Arya maintained their top rating for Nvidia, setting a $165 price target for the stock and arguing it’s an especially “attractive opportunity” for investors after shares fell more than 15% from last week’s high through Wednesday’s close.
The selloff came as the best-known architect of AI semiconductor technology faces “several headwinds” in the eyes of investors, according to Arya.
Concerns include delays for its next-generation Blackwell graphics processing unit for generative AI, a weak buyers market due to macroeconomic issues like the presidential election, and regulatory concerns which peaked Tuesday when Bloomberg reported the Justice Department subpoenaed Nvidia in an antitrust investigation, though the company later told Forbes it had not been subpoenaed.
Bank of America analysts said it assumes “no specific material impact” on Nvidia from the potential Justice Department probe, noting “the plethora” of recent government inquiries into big technology companies.
Shares of Nvidia rallied 2% to $108 in Thursday trading, but remained down 14% from its closing price last Wednesday ahead of its second-quarter earnings report.
Big Number
$4 trillion. That’s Nvidia’s valuation implied by Bank of America’s $165 share price target. That is significantly larger than any public company ever, with the prior record set by Apple in July with a nearly $3.6 trillion market capitalization. Nvidia was the third most valuable company in the world Thursday with a $2.7 trillion valuation, trailing only Apple and Microsoft.
Key Background
Valued at less than $300 billion as recently as Oct. 2022, Nvidia stock’s meteoric rise over the last two years has been nothing short of remarkable. The Silicon Valley firm designs most of the high-tech chips which power generative AI applications like OpenAI’s ChatGPT, making Nvidia the unquestioned winner of the recent AI gold rush. Investors have lusted after Nvidia for its sky-high profit margins while scaling revenues: Its 75% gross margin last quarter trounced Q2 2022’s 43% as sales exploded from $7 billion to $35 billion, a hard-to-fathom feat for a company of its size.
Contra
Though it remains a hot stock on Wall Street – none of the 62 analysts at FactSet have a sell rating for Nvidia – some of its fundamentals certainly can scare off the faint of heart, as its price-to-sales ratio is the richest of any company listed on the S&P 500 at 25. That means its market value is 25 times its prior year revenues, almost 10 times the median S&P company’s 2.8 price-to-sales. But considering analysts project Nvidia to report $125 billion in sales this fiscal year, more than 1,000% higher than its revenue five years prior, it’s not a stretch to see why investors are pricing in continued high growth.