Nvidia Underperforms as BofA Sees Buying Opportunity

Key Moments

Nvidia’s stock is up just 3% year-to-date while the Philadelphia Semiconductor Index has gained 82%, according to Bank of America.
Bank of America reiterated its Buy rating and $350 price target, arguing that concerns about margins, ASIC competition, ownership, and capital deployment are overstated.
The firm expects Nvidia’s gross margins to remain around the mid-70% range, supported by pricing power and $119 billion in supply-chain commitments.

BofA Reaffirms Bullish View on Nvidia

Investing.com — Bank of America reiterated its positive stance on Nvidia, describing the company’s recent stock performance versus the broader semiconductor sector as an attractive entry point. In a note published Wednesday, the bank maintained its Buy rating on Nvidia and kept its price target at $350.

Analyst Vivek Arya highlighted that, despite Nvidia’s leading position in artificial intelligence computing, the stock has risen just 3% year-to-date. Over the same period, the Philadelphia Semiconductor Index has advanced 82%, underscoring a sharp divergence in performance.

Investor Concerns Weighing on the Stock

Arya outlined four main issues that he believes are pressuring Nvidia shares: potential gross margin compression from rising memory costs, competition from custom application-specific integrated circuits (ASICs), heavy and concentrated ownership among investors, and skepticism about the company’s use of cash, particularly vendor financing instead of share repurchases or dividends.

Key Concern	Bank of America View
Gross margin pressure from higher memory costs	Investors are seen as overstating cost risk and underestimating Nvidia’s pricing power, scale, and $119 billion in supply-chain commitments.
Custom ASIC competition	Existing ASIC products from large technology companies have not prevented substantial Nvidia GPU revenue growth.
Crowded investor ownership	Listed as a concern contributing to share underperformance.
Use of cash via vendor financing	Some investors question this allocation versus buybacks or dividends.

Margin Outlook Supported by Pricing Power

Addressing margin worries, Arya argued that investors “overstate HBM cost pressure while underestimating NVDA’s pricing power, scale, and $119 billion of supply-chain commitments.” He noted that high-bandwidth memory (HBM) content per rack is expected to climb by roughly $0.2-0.3 million when moving from the Blackwell generation to Rubin.

However, Arya indicated that total rack pricing could increase by $2-3 million, supported by improvements across compute, networking, and software. Based on this dynamic, Bank of America expects Nvidia’s gross margins to hold around the mid-70% range.

ASIC Competition and Hyperscaler Demand

On the competitive front, Arya pointed to custom ASIC offerings such as Google’s TPU, Amazon’s Trainium, and Meta’s MTIA. He noted that these products “have all existed for years, “yet NVDA GPU revenue has grown approximately 700 times since 2015.” During this period, sales to hyperscale customers climbed 115% year-on-year, nearly double the pace of cloud capital expenditure growth.

Valuation Seen as Reflecting Excessive Pessimism

Bank of America described Nvidia’s current valuation as undemanding relative to its growth profile. The firm stated that Nvidia is trading at 18 times forward earnings, which it characterized as a seven-year low. According to the note, this multiple suggests an “unjustified 30-35% headwind” to 2027-2028 earnings-per-share estimates compared with growth-oriented peers.

Arya made clear his disagreement with that implication, stating that he “strongly disagrees with” the market’s current assessment embedded in the valuation.