Can anything slow Nvidia's ascent? That's the question on the minds of most investors as the tech darling continues to break records. This week alone the company briefly passed mighty Microsoft to notch the title of the world's most valuable company (though by Friday it had dipped back into 2nd place). According to Fortune's calculations, $1,000 invested in NVDA stock 10 years ago would be worth almost $300,000 today.
But the analysts at Bank of America believe there's still plenty of room for NVDA to run. In a recently published note analysts Vivek Arya, Duksang Jang, and Lauren Guy write that while the stock's steep climb make it "vulnerable" to profit-taking, any volatility is likely to be short-lived. (They note that Nvidia is already up 50% in Q2 vs. 4% for the S&P 500). They put a price target of $150 on the stock, which as of midday Friday was trading just above $126.
Nvidia stock forecast
What may drive Nvidia's stock higher? The analysts write that GenAI hardware deployments are still only in the second year of what could be a three- to five-year deployment cycle, representing around $300 billion in long-term opportunity, and a three-times increase on the current year. They also believe NVDA's "next-gen purpose-built Blackwell AI accelerator systems will start later this year, with solid demand/visibility across cloud customers." The analysts write that Dr. Ian Buck, Nvidia's VP of Hyperscale, recently presented at a BofA tech conference and they came away impressed. "Dr. Buck stressed NVDA's moat in co-optimizing and consistently improving silicon, system and software," they wrote.
As for valuation? The BofA teams calls it "compelling" at "only" a P/E of around 30, based on the bull case earnings scenario of $5 per share. They note that quarterly earnings per share have grown six times, well ahead of the the 4.5x stock move since the "seminal" Q1 of 2024. Bottom line: "Unlike the 'dotcom boom' that was funded by risky debt-taking, genAI deployment is a mission-critical race between some of the best-funded (cloud) customers," the analysts write.
But not everyone is convinced. As Shawn Tully wrote recently for Fortune, there's a case to be made that Nvidia is a fabulous company with a bright future and an AI pioneer—but at these valuations is still destined to be an extremely poor investment. Tully spoke to David Trainer, founder and CEO of research firm New Constructs who told him: “Nvidia’s valuation is ridiculous. It’s facing the same curse as Tesla. But when Tesla got profitable, loads of competitors entered the EV space, cutting margins and slowing sales. The same will happen with Nvidia.”
Tully added that Trainer believes investors are awarding Nvidia such an inflated valuation “by extrapolating the competitive advantage it has today in perpetuity.” But margins as magical as Nvdia has posted don't go unnoticed, he points out. As he told Tully, “Anytime a competitor sees margins like that, they jump in and make big investments to grab part of your business. For now, Nvidia can do what no one else can do, but the best competitors will find a way. It will become a race to the bottom.”
