Nvidia has lost roughly a trillion dollars in market value in less than two months. Although the semiconductor index has nearly doubled year to date, Nvidia is up only about 4%.
For the company that makes most of the chips that power the AI revolution, that kind of lag has investors asking what is going on.
Bank of America has an answer. On July 8, analyst Vivek Arya reiterated his buy rating and $350 price target on Nvidia and argued the stock is not underperforming because the business is struggling. It is underperforming because investors are worried about the wrong things.
Bank of America says Nvidia valuation at 7-year low
Arya, ranked among the top 2% of Wall Street analysts on TipRanks with a 64% success rate and an average return of 32% per rating, made the valuation case plainly in his July 8 note.
Nvidia is currently trading at its lowest forward earnings multiple in seven years, a level that Bloomberg noted takes the stock back to pre-AI boom valuation territory.
“We strongly disagree with the EPS discount and see [it] as an enhanced buy opportunity for a unique, durable growth franchise,” Arya wrote.
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His read is that the market has already priced in a significant hit to Nvidia’s earnings over the next two years that he does not think is coming. That pessimism baked into the stock is what makes it look attractive to him, even after everything the business has delivered.
Bank of America projects Nvidia will generate an amount of free cash flow over the next two years roughly equal to Apple and Microsoft combined, as TheStreet reported, yet it trades at a meaningful discount to both.
4 investor concerns Bank of America says are overblown on Nvidia
Arya structured his note around four concerns driving the skepticism and why he thinks each one is being overstated.
1. Gross margin pressure from memory costs
Nvidia’s newer AI systems need more high-bandwidth memory, which raises input costs. Arya pushed back on this directly.
When Nvidia upgrades from one chip architecture to the next, the price increase it charges customers far exceeds the rise in memory costs. The company also has $119 billion in supply-chain commitments that give it significant pricing leverage. Bank of America expects margins to hold in the mid-seventies.
2. Competition from Google, Amazon chips
Arya noted competition from custom AI chips being built by Google and Amazon. His response is straightforward: Nvidia’s sales to those same hyperscalers have grown at nearly twice the pace of their overall cloud spending.
Nvidia’s GPU revenue has grown exponentially since custom chips first entered the market in 2015, according to Benzinga, and market share has not eroded the way bears expected.
3. Crowded ownership
With Nvidia representing a large slice of the S&P 500, institutional money is already heavily positioned. Arya’s view is that a seven-year valuation low tends to attract new buyers rather than push out existing ones.
4. Cash deployment
Some investors want to see more buybacks or dividends instead of what they see as unproductive strategic investments.
Arya’s team suggested Nvidia could raise its dividend to be more in line with Apple and Microsoft and still have plenty of cash left for buybacks. The free cash flow outlook makes it feasible.
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Why Nvidia’s AI data center business keeps accelerating
Nvidia’s data center business grew revenue by roughly three quarters last quarter compared to a year earlier. Networking within that segment grew even faster.
CEO Jensen Huang has said computing demand is growing exponentially and that the agentic AI inflection point has arrived.
Bank of America has raised its long-term forecast for the AI data center market significantly, projecting a total addressable market well above a trillion dollars by 2030. Arya expects Nvidia to capture the dominant share of AI capital spending across that cycle, a position the company has held, even as competition has grown.
The next major catalyst is the Vera Rubin chip platform, expected to deliver dramatically better performance per watt than current architecture.
As TheStreet reported, the supply chain concerns circulating in July around delays in Nvidia’s next-generation rack systems have not changed the underlying product roadmap, and Arya’s thesis does not depend on those timelines being perfect.
What Bank of America’s Nvidia buy rating means for stock investors right now
Arya’s note lands at an unusual moment. CNBC reported that Bank of America has had Nvidia among its top picks all year, and Arya has maintained his buy rating through each round of investor concern.
The $350 target sits well above the Street consensus, making him one of the more aggressive bulls even in a broadly bullish analyst community.
What makes the July 8 note worth reading is not the price target. It is the framing. Arya is making a valuation argument on one of the most important companies in the market, saying it is trading at a seven-year low while its fundamentals keep improving.
The risks he acknowledges are real. Export restrictions have cut China out of Nvidia’s data center revenue guidance. Memory cost headwinds exist. A slowdown in hyperscaler AI spending would hurt Nvidia more than most.
Arya is not dismissing those risks. His point is that the current stock price already assumes a much worse outcome than the evidence supports, and that the market is giving too much weight to near-term noise while underestimating the actual durability of Nvidia’s position.
Related: Jim Cramer sends strong signal to Nvidia stock investors amid rumors