Bank of America commented on Nvidia’s stock, noting its remarkable surge has triggered emotions of both “fear and greed.
It is projected by Vivek Arya from Bank of America that Nvidia’s stock may experience a decrease of up to 11% subsequent to its earnings. Nevertheless, this fluctuation is foreseen as transient, primarily attributed to excessive optimism rather than fundamental factors.
The stock is expected to garner momentum from the forthcoming GPU Tech Conference scheduled for mid-March.
Nvidia’s rapid ascension in mega-cap valuations has positioned it as a top pick for Bank of America research analyst Vivek Arya. However, in his latest report released on Thursday, he noted the possibility of a substantial stock pullback.
Nvidia, a large-cap technology company, distinguishes itself with a PE ratio of 31x/25x CY24/25, which is below its projected 45% EPS Compound Annual Growth Rate for CY23-25. Arya forecasts a potential EPS of $40 by CY27E, propelled by a market valued at over $160 billion in accelerators. This number could rise to $80 per share if the market achieves AMD’s ambitious $400 billion milestone.
Nvidia’s key strength lies in its dominant position in the market, as projected by Arya to maintain a 90% share in AI training and over 50% in AI inference. Arya emphasizes Nvidia’s wide array of products, ranging from approximately $1.2k to over $30k, ensuring comprehensive market coverage in computing.
The semiconductor giant is scheduled to announce its earnings on February 21, with investors holding optimistic expectations. Market projections for Nvidia stand at $21.7 billion for the fourth quarter, which is 9% higher than the consensus estimate.
This optimistic outlook may constrain Nvidia’s capacity to surpass expectations, potentially resulting in an 11% decline post-earnings, as outlined by Arya referencing Bloomberg options data. Presently, the stock is trading around $740.
Arya suggests that any probable downturn would be transient, underscoring that Nvidia’s failure to meet bullish estimates would likely stem from supply-related challenges rather than concerning shifts in demand or competition.
Furthermore, Arya anticipates that volatility will subside following Nvidia’s upcoming GPU Tech Conference in mid-March. He highlighted, “Historically, NVDA stock has, on average, been 6% higher (versus SPX up 1%) T+1 days following the last six annual GTC events.”
Nvidia remains an appealing investment, valued at 35 times its price-to-earnings ratio, which is below its median. The company’s shares have markedly surged, catapulting it past Amazon and Alphabet to become the third most valuable entity on the S&P 500 index. The stock has recorded a 250% increase through 2023, propelled by its technology’s pivotal role in the advancement of artificial intelligence.
Arya emphasized that the recent upsurge in Nvidia’s stock could be attributed to a blend of fear, greed, and investors’ pursuit of AI-related opportunities. While acknowledging these factors, he stressed that they had undervalued the company’s strong performance and earnings per share revisions.
Furthermore, Arya underscored Nvidia’s compliance with US regulations governing chip exports to China. In response to these regulations implemented in October, Nvidia adjusted certain semiconductors to reduce performance levels, ensuring alignment with Chinese market regulations. China typically accounts for approximately a fifth of Nvidia’s revenue.
Despite the likelihood of a market correction, Wall Street’s favor for Nvidia remains evident. Investment firms spearheaded by prominent billionaires such as Ray Dalio, Paul Tudor Jones, and Stanley Druckenmiller have been augmenting their holdings in the semiconductor powerhouse.