In a note released on Wednesday, Bank of America expressed its view that even with a valuation of $2.2 trillion, Nvidia stock remains attractively priced.
The bank reiterated its “Buy” rating and raised its price target to $1,100 from $925, implying a potential upside of 24% from current levels.
Bank of America analyst Vivek Arya emphasized that despite the year-to-date outperformance, Nvidia’s valuation and ownership metrics remain appealing compared to peers in the semiconductor and information technology sectors.
Nvidia’s shares have surged by 80% year-to-date and have seen a remarkable 287% increase over the past year, driven by robust demand for its AI-enabling graphic cards.
Despite the remarkable growth of Nvidia’s core business, the stock is trading at valuations lower than those observed when ChatGPT was first launched in 2022.
Arya pointed out that Nvidia is currently trading at 37 times the next twelve months (NTM) price-to-earnings ratio (PE), compared to 44 times PE at the time of ChatGPT’s launch in November 2022. He also noted that the stock is comfortably within its historical forward price-to-earnings range of 26x to 69x.
While Nvidia remains a widely held stock among investors, their ownership levels are still below the stock’s weight in the S&P 500 index.
Arya highlighted that despite Nvidia being broadly owned by 67% of funds in their survey, its relative weighting in comparison to its concentration in the S&P 500 is lower than that of large-cap infotech peers. He noted that there is potential for further upside, given Nvidia’s nearly 9x faster growth potential.
Nvidia’s upcoming “AI Woodstock” event on March 18, during its GPU Technology Conference, could serve as a catalyst for additional upside in the stock. During this event, Nvidia is expected to unveil the successor to its highly popular H100 chip.
Arya anticipates that the event will demonstrate the growing impact of genAI, omniverse/digital twins across various end-markets, and the opportunity to re-architect a significant portion of global computing infrastructure with accelerators.
This could result in an annual market potential of $250-$500 billion over the next 3-5 years. Additionally, Arya expects updates across accelerators (B100, N100), Ethernet switches, Data Processing Units (DPU), and edge AI during the conference.
