Bank of America reiterated its Buy recommendation and $350 price target on Nvidia, saying the company's relative underperformance so far this year creates an attractive entry point for investors. Analyst Vivek Arya highlighted that Nvidia's stock has risen only 3% year-to-date while the Philadelphia Semiconductor Index has climbed about 82%.
Arya summarized four principal worries that he believes are restraining the shares: gross margin pressure linked to rising memory costs, competitive threats from custom ASICs, a crowded shareholder base, and concerns that Nvidia is allocating cash to vendor financing instead of share buybacks or dividends.
On the topic of gross margins, Arya argued investors exaggerate the impact of higher HBM memory costs and underappreciate Nvidia's pricing leverage, scale advantages, and its $119 billion of supply-chain commitments. He noted that while HBM content per rack could rise by roughly $0.2-0.3 million when moving from Blackwell to Rubin architectures, rack-level pricing may increase by about $2-3 million because of upgrades spanning compute, networking and software. Based on these dynamics, Bank of America expects Nvidia's gross margins to remain in the mid-70% range.
Regarding competition from custom accelerators, Arya observed that technology players such as Google, Amazon and Meta have developed their own ASICs in recent years, yet Nvidia's GPU revenue has expanded dramatically - roughly 700 times since 2015. He also pointed out strong hyperscaler demand, with sales to those customers rising 115% year-on-year, outpacing cloud capital expenditure growth by nearly twofold.
Valuation was another focus. Arya noted that Nvidia trades at about 18 times forward earnings, a seven-year low, and that this multiple embeds what he called an "unjustified 30-35% headwind" to 2027-2028 EPS forecasts versus growth peers - a view he said he strongly disagrees with.
Bank of America's analysis frames Nvidia's current market performance as a contrast to the broader semiconductor rally. The firm emphasized operational levers - pricing power, scale, and sizeable supply-chain commitments - that, in its view, mitigate the cited risks and support sustained margin levels.
Contextual notes - The analysis centers on the interplay between component cost dynamics, product-level pricing, and large-scale customer demand. It underscores hyperscaler spending patterns and the role of vendor financing in capital allocation discussions.