© Shutterstock / rafapress
Bank of America slapped a $275 price target on Nvidia (NASDAQ:NVDA) stock. This is nowhere near the highest price target of $352, but it is still something to peek into, considering BofA is a major firm that has usually been more conservative.
What’s more puzzling is that this price target came at a time when big-name investors and “gurus” started doubting Nvidia’s story. For example, Michael Burry implied that Nvidia was misrepresenting its earnings by what he sees as the delayed depreciation of GPUs. NVDA stock is now at a 10% discount since that price target was issued.
Should you pay any heed to it, and is BofA’s price target within reach in the near term? Let’s take a look at what the analyst has to say.
The rationale behind BofA’s NVDA price target
Vivek Arya is a Managing Director and Senior Equity Research Analyst at Bank of America Securities, specializing in semiconductor and semiconductor equipment research with a focus on leading technology companies. He’s the analyst behind the Nvidia price target.
Similar companies like AMD (NASDAQ:AMD), Intel (NASDAQ:INTC), Broadcom (NASDAQ:AVGO), Qualcomm (NASDAQ:QCOM), and Marvell Technology (NASDAQ:MRVL) fall within his coverage. He has a 61% success rate with a 20.5% average return per rating.
Bank of America called the AI skepticism healthy but overstated in the near to medium term, and believes the skepticism ensures that the space is not “overcrowded”. They’re basically implying that with bears being so skeptical, it is keeping the “bad money” out. Ergo, the NVDA stock rally is healthy.
His team said that OpenAI spending has not yet peaked, and that Nvidia’s $500 billion data center order disclosure for 2025 and 2026 means that the company can keep growing sales and profits by up to 70% annually. Yet, you’re still paying a modest 25 times next fiscal year’s estimated earnings.
Arya’s price target is based on a “44 multiple,” his estimate for price-to-earnings ratio, minus cash for the calendar year 2026. This falls within Nvidia’s historical forward PE.
Slowdown fears are “completely wrong,” according to Arya
Investors have long been uneasy about how sustainable Nvidia’s sales growth is, considering hyperscalers are unlikely to be comfortable paying high margins for Nvidia’s AI chips. Many of them are already designing custom-made chips to sidestep paying Nvidia. In late October, Google signed a deal with Anthropic (the company behind Claude AI) for up to 1 million Tensor Processing Units (TPUs).
Arya says that the worry is “off the mark” and believes demand is still there. He used Amazon’s (NASDAQ:AMZN) recent AWS event as an example.
AWS is the largest cloud computing hyperscaler out there, and he says it is still reliant on Nvidia. For example, AWS plans to use NVLink Fusion (a Nvidia platform) for its in-house Trainium 4 accelerator expected next year or in 2027. This keeps Nvidia in the loop, though it does show that companies are trying to reduce their reliance.
The Bears or BofA, who’s right?
It is not impossible to imagine a universe where both the bears and the bulls are proven right. Nvidia has been posting blockbuster earnings quarter after quarter, and expecting the hype train to derail abruptly is too pessimistic.
At the same time, maintaining growth rates above 50% annually for the long term is impossible. Nvidia will have to slow down at some point as the AI buildout matures. Whether that will be in 2026 or 2030 is anyone’s guess.
I believe NVDA stock can cross $275 or even $300 and beyond in the coming quarters as long as it keeps trouncing earnings estimates. You’re not being asked to pay a lot for it, and there’s plenty of upside potential left if the hype picks up even more from here.
Hyperscalers will diversify, and competition can start to chip away in the coming years. If the AI buildout suddenly slows down and there’s a glut of AI GPUs, margins can crash, and so can the stock. So far, nothing points to that being the case just yet. I’d side with BofA until Nvidia’s financial statements reflect anything bearish.