Nvidia Stock Undervalued: BofA Sees Buying Opportunity Ahead of Earnings

BofA Analysts Highlight Valuation Disconnect for Nvidia

Bank of America analysts have reiterated their bullish stance on Nvidia Corporation (NVDA), arguing that the chipmaker's recent underperformance relative to semiconductor peers reflects a valuation disconnect rather than deteriorating fundamentals. Despite dominating the artificial intelligence (AI) chip market under CEO Jensen Huang, Nvidia shares have gained just 3% year-to-date through Monday, lagging the PHLX Semiconductor Index's over 80% surge.

The firm's equity strategist Vivek Arya attributes the stock's weakness to market overreaction to two key concerns: rising high-bandwidth memory (HBM) costs and competition from hyperscaler-designed custom chips like Google's TPUs. However, Arya contends these risks are overstated, citing Nvidia's pricing leverage and $119 billion in supply-chain commitments. He expects the company's gross margins to hold in the mid-70% range through its Rubin platform transition, offsetting HBM cost pressures.

Relative Valuation Metrics Signal Opportunity

Nvidia's forward price-to-earnings (P/E) ratio of 18.69 sits near an 11-year low, roughly half its 10-year average of 36.90. This places the stock at a discount to tech peers Microsoft and Apple, despite comparable AI exposure and similar supply-chain challenges. Arya projects the August earnings report will reaffirm Nvidia's competitive moats in product innovation, pricing power, and supply-chain dominance.

The analyst estimates Nvidia will maintain a 65-70% share of hyperscaler AI infrastructure spending long-term, underscoring its entrenched position in the AI revolution. This outlook contrasts with bearish narratives suggesting custom chips could erode Nvidia's market share, particularly as Google's TPUs have coexisted with the company's GPU revenue growth of 700-fold over the past decade.

Implications for Traders and Risk Sentiment

For equity and FX traders, Nvidia's trajectory may signal broader trends in tech sector valuations and risk appetite. The stock's underperformance amid semiconductor strength suggests selective investor caution, potentially influencing USD-denominated tech flows. Upcoming earnings will test whether Nvidia can validate its pricing strategy and margin resilience, key factors for sustaining its premium in AI-driven markets.

While no direct central bank or inflation link exists, rising component costs highlight supply-chain inflation pressures that could indirectly impact tech sector multiples. Traders may monitor how Nvidia's earnings guidance aligns with broader macroeconomic expectations for corporate pricing power.

Risk Disclaimer: This analysis is for informational purposes only and does not constitute investment advice. Market conditions are subject to change, and past performance is not indicative of future results. Consult a financial advisor before making trading decisions.