Nvidia's AI Bet Looks Too Cheap for Bulls

Nvidia is at an unusual intersection of cheap valuation and light institutional positioning, according to BofA's Simple Take. The financial firm sees the potential business in AI infrastructure as huge, with an initial project alone requiring roughly 1.5 million GPUs and generating around $150-200B of Nvidia revenue per hardware generation.

OpenAI is the tenant for a new $105B backstop tied to an SB Energy data center in Ohio, which is not simply Nvidia handing OpenAI a $105B cheque. It's mainly a residual-value guarantee, where Nvidia is helping guarantee the value of the AI infrastructure if OpenAI fails to meet its lease obligations.

Vivek Arya, BofA's key U.S. semiconductor analyst covering Nvidia alongside AMD, Broadcom, Micron, KLA and Marvell, remains firmly bullish on the stock with a Buy rating and $350 price target. He believes that despite the financing risk being real, Nvidia already looks priced as if a lot goes wrong.

Nvidia's forward valuation is around 16x CY27, 0.3x PEG, and lowest in roughly a decade, according to BofA. Even after applying a heavy discount to the cash Nvidia may use to finance its AI ecosystem, BofA's valuation framework still suggests the stock is roughly 50% undervalued on CY27 numbers and 34% on CY28.