Bank of America Names Nvidia (NVDA) Stock Top Semiconductor Pick Ahead of Earnings

Key Takeaways

Table of Contents

Bank of America forecasts Nvidia’s Q2 revenue will reach $94B-$95B, surpassing the company’s $91B guidance, while Q3 is expected at $107B-$108B
The chip giant’s forward P/E ratio of 16x based on 2027 earnings estimates marks its lowest valuation in a decade, according to BofA
Concerns about memory pricing pressures are deemed “overblown,” with gross margin forecasts steady at 73%-74%
The company has allocated approximately $70B in equity investments to ecosystem partners, with $30B directed to OpenAI
Bank of America reaffirms its Buy recommendation with a $350 price target and projects EPS exceeding $25 by 2030

Shares of Nvidia opened Friday’s session at $223.96, marking a 2.3% gain, with the stock trading near its 12-month peak of $236.54. Despite this impressive climb, Bank of America Global Research released analysis this week arguing the semiconductor leader remains undervalued relative to its historical trading patterns.

NVIDIA Corporation, NVDA

According to the investment bank, Nvidia currently trades at just 16 times its estimated 2027 earnings per share—representing the company’s most attractive forward price-to-earnings valuation in ten years. Bank of America reiterated its Buy recommendation alongside a $350 price target, designating Nvidia as its preferred selection in the semiconductor space.

The company is scheduled to announce quarterly results following Wednesday’s market close on Aug. 26.

Revenue Expected to Exceed Guidance in Q2 and Q3

Bank of America anticipates Nvidia will deliver fiscal second-quarter revenue in the $94B to $95B range, comfortably above the company’s official $91B forecast. Looking ahead to the third quarter, the firm projects revenue between $107B and $108B, which would top the consensus estimate hovering around $104B.

This optimistic outlook stems partly from the commencement of Nvidia’s Vera Rubin next-generation chip deliveries, which BofA characterizes as the beginning of an extended upgrade cycle spanning multiple quarters.

Current GPU rental rates in the spot market have risen to $5.66 hourly for B200 processors, approaching all-time peaks. Bank of America projects Nvidia will maintain a commanding 65% to 70% share of the AI accelerator marketplace through the end of the decade.

Rising Memory Expenses Pose Limited Threat

Among the primary concerns surrounding Nvidia ahead of its earnings announcement are escalating memory component costs. DRAM expenses now account for 40% to 50% of total production costs, a substantial increase from the historical 15% to 20% range.

Bank of America downplays these concerns. The firm contends Nvidia’s strong pricing leverage and strategic supplier partnerships with companies such as SK Hynix will mitigate potential impacts. For Vera Rubin NVL computing racks specifically, memory cost increases translate to merely 60 basis points of margin pressure compared to the existing Blackwell Ultra platform.

The bank expects gross profit margins to settle into a 73% to 74% band going forward, down modestly from approximately 75% currently.

Bank of America also examined questions surrounding Nvidia’s venture capital activities. The analysis reveals the company has committed around $70B in direct equity stakes across ecosystem collaborators, with OpenAI receiving $30B and Anthropic potentially receiving up to $10B. Given projected free cash flow of $469B spanning 2026 and 2027, BofA concludes the financial position remains robust.

When Nvidia last reported on May 20, the company posted first-quarter revenue of $81.61B, representing 85.2% year-over-year growth, alongside EPS of $1.87 that exceeded the $1.76 consensus. Management also announced an $80B stock repurchase authorization and increased the quarterly dividend to $0.25 per share.

Wall Street consensus currently reflects a Buy rating with a mean price objective of $304.26. Bank of America’s $350 forecast ranks among the Street’s most bullish projections.

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