Summary
- Bank of America reaffirms a "buy" rating on Nvidia, increasing its price target to $350 following a record Q1 revenue of $81.6 billion.
- The bank anticipates the AI market will exceed $3 trillion by 2030, alongside a $200 billion opportunity in CPUs and $145 billion in customer commitments.
- Bank of America identifies Nvidia's size as a significant risk, with the stock now comprising 8.3% of the S&P 500.
Nvidia has reported its highest revenue quarter ever, yet its stock price has dropped. This trend of declines after earnings announcements has occurred three times in the last four quarters, despite increasing financial figures.
Bank of America remains undeterred. Lead analyst Vivek Arya and his team reiterated their buy recommendation yesterday, designating Nvidia as a top choice while raising their price target from $320 to $350, suggesting a potential upside of 56.6% from its current price of $223.47.
The investment note emphasized: "Beat/raise speaks volumes, ignore noise, buy top pick."
For those unfamiliar with Wall Street terminology, a "beat" indicates a company has surpassed analyst expectations, while a "raise" signifies that its future guidance is also above predictions. When both occur simultaneously, it is generally regarded as very positive news. Bank of America advises investors to overlook the stock's recent correction, referring to it as "noise."
Quarterly Performance Metrics
Nvidia's Q1 revenue reached a record $81.6 billion, reflecting an 85% increase year-over-year and a 20% rise from the previous quarter. Analysts had projected around $79.1 billion, meaning Nvidia exceeded that estimate by 3.1%, or approximately $2.5 billion. For context, the previous quarter had already set a record at $68.1 billion, with Nvidia adding $13.5 billion in just three months.
The primary driver of this success is data centers, which are massive server warehouses essential for powering AI models, cloud computing, and various online functions.
Revenue from data centers alone reached $75.2 billion, a 92% year-over-year increase. This revenue is nearly evenly divided between major cloud providers like Amazon and Microsoft, and a rapidly growing number of AI firms, factories, and industrial clients.
On an adjusted basis, earnings per share came in at $1.87, surpassing the $1.73 that analysts anticipated. The gross margin, which represents revenue remaining after production costs, remained steady at 75%. Free cash flow for the quarter totaled $48.6 billion. Jensen Huang remarked during the earnings call, "Agentic AI has arrived, doing productive work, generating real value and scaling rapidly."
Agentic AI is currently a hot topic among Wall Street experts.
Reasons Behind BofA's Optimism
The key argument for Bank of America isn't merely based on a single quarter's performance; it's centered around the vast and rapidly growing market Nvidia is operating in.
Previously, BofA estimated the total AI market to be worth $1.7 trillion but now predicts it will expand fourfold, surpassing $3 trillion by 2030. Within this landscape, they project Nvidia will maintain approximately 78% of the AI accelerator market, which consists of chips specifically designed for AI tasks, indicating a near-monopoly in what BofA claims is the fastest-growing tech market they have ever monitored.
Additionally, the bank has recently upgraded its outlook on a new opportunity. Nvidia is advancing into agentic CPU chips: processors tailored for AI agents—software capable of autonomously executing complex tasks without human intervention. BofA has revised its market estimate for this segment from $125 billion to $200 billion, noting that Nvidia has already secured $20 billion in demand for the latter half of the fiscal year.
This demand is not based on speculation; customer purchase commitments reached $145 billion this quarter, up from $95 billion just three months prior. AWS has already committed to deploying about 1 million Nvidia GPUs by 2027, indicating binding contracts rather than mere aspirations.
Identifying Risks
BofA outlines six formal risks, two of which warrant particular attention for current or prospective Nvidia investors.
The first risk relates to the stock's considerable market presence. Nvidia now constitutes 8.3% of the S&P 500 index, which tracks the 500 largest publicly traded companies in the U.S. Approximately 78% of active fund managers already own Nvidia shares, meaning there are fewer potential new buyers available to drive the stock price higher.
The second risk involves the development of custom chips. Major cloud companies like Google have begun investing heavily in in-house alternatives specifically designed to reduce reliance on Nvidia, with Google recently unveiling its eighth-generation AI chips. BofA contends that Nvidia will still maintain over 70% of the accelerator market in the long run, arguing that full-platform support and AI factory infrastructure are aspects that custom chips cannot replicate.
Critics have also raised concerns that Nvidia's investments in companies like OpenAI and Anthropic—as a chip supplier—may lead to circular spending.
Future Financial Projections
BofA has increased its earnings-per-share forecasts by 9% for fiscal 2027 (to $9.09) and by 15% for fiscal 2028 (to $13.27). To put this in perspective, Nvidia reported earnings of $4.55 per share last fiscal year. BofA expects this figure to nearly double to $9.09 this year and reach $13.27 the following year. Achieving 43% annual growth in earnings per share is rare for any company, especially one valued at $5.5 trillion.
Currently, Nvidia's stock trades at 19.7 times its projected 2027 earnings. A growth-adjusted P/E ratio, where lower values are preferable, stands at 0.5x compared to a Mag-7 average of 3.9x.
Free cash flow is anticipated to increase from $96.7 billion last fiscal year to $186.8 billion in 2027 and $282 billion in 2028. The company has also significantly raised its quarterly dividend from $0.01 to $0.25 per share and announced an additional $80 billion share repurchase authorization, bringing the total repurchase capacity to about $120 billion.
The $350 price target relies on a multiple of 26x projected 2027 earnings, which falls within Nvidia's historical range of 25x to 56x. The next key event to watch will be CEO Jensen Huang's keynote at Computex on June 1, where BofA anticipates he will detail Nvidia's agentic AI roadmap and CPU strategy.