NVIDIA (NASDAQ: NVDA) Stock Falls on Analyst Warning

NVIDIA Corporation (NASDAQ: NVDA) stock fell during pre-market trading Friday as BofA analyst foresees brief volatility amid profit-taking.

Vivek Arya, equity analyst at Bank of America, maintains a bullish stance on NVIDIA, despite its recent ascent to become the world’s largest company, surpassing Microsoft (NASDAQ: MSFT).

Arya shared a note with clients on Thursday, emphasizing that while NVIDIA’s rapid rise could trigger short-term profit-taking, he believes any resulting “volatility (is) likely to be short-lived.” He attributed this confidence to the company’s robust fundamentals and attractive valuations.

Key Drivers of Positive Outlook

Arya outlined several key factors driving his positive outlook:

GenAI Deployment Opportunity: Arya highlighted Nvidia’s ongoing deployment of GenAI hardware, which is still in the early stages of what could be a 3 to 5-year cycle. He estimates a substantial $300 billion opportunity for NVIDIA in this space, about three times larger than the company’s expected revenue this year.

Next-Gen AI Accelerators: Additionally, Arya forecasts that Nvidia’s upcoming Blackwell AI accelerator systems, set to launch later this year, will meet strong demand from cloud customers, driving further growth momentum.

Growing On-Premise AI Demand: Arya also noted a rising demand for on-premise AI solutions, including enterprise and sovereign AI, as well as the early stages of software monetization, as additional growth drivers for the company.

Attractive Valuation: Arya underscored that NVDA stock’s current valuation is compelling, trading at 35-40 times the consensus and about 30 times price-to-earnings (PE) based on a bullish earnings scenario of $5 per share. This is particularly noteworthy given the expected annual earnings growth of over 50% projected from 2023 to 2026.

Since the pivotal Q2 2024 earnings call in May 2023, NVIDIA’s quarterly earnings per share have soared nearly sixfold, outpacing the stock’s 4.5-fold increase.

Arya underscored the fundamental differences between the current AI-driven surge and the dot-com boom of the late 1990s. He noted that today’s “genAI deployment is a mission-critical race among some of the best-funded (cloud) customers,” unlike the debt-fueled speculation of the past.

Bank of America reaffirmed its Buy rating on NVIDIA shares, forecasting a potential 10.2% upside from Tuesday’s closing price over the next year.