Nvidia’s shares are trading at a discount of 34% to 50% relative to fair value based on a sum-of-the-parts free cash flow analysis by Bank of America, according to analyst Vivek Arya.
The assessment comes as Nvidia’s stock fell 2.5% on Tuesday to $219, tracking broader declines in AI-linked equities. Year-to-date, Nvidia remains up 18%, though still about 7% below its May peak. Arya noted that the discount may overstate risks and could represent an attractive entry point.
The valuation gap persists despite Nvidia’s aggressive expansion into the AI ecosystem. The company has committed up to $105 billion to a data center in Ohio, leased to OpenAI, while also announcing significant investments in SpaceX and Intel. BofA estimates Nvidia has pledged roughly $300 billion in capital to partners, including $70 billion in equity investments and $230 billion in residual value guarantees or hedges.
Arya described Nvidia’s strategy as securing inputs critical to AI growth, such as chip supply, land, and power infrastructure. This approach reduces reliance on hyperscalers developing competing chips and aligns with Nvidia’s broader diversification efforts.
The analyst highlighted current conditions as favorable, citing strong GPU rental prices, constrained compute capacity, and Nvidia’s industry-leading cash flow generation. However, he cautioned that a slowdown in AI demand could pressure growth and balance sheet metrics.
To address investor concerns over earnings quality, BofA recommends Nvidia increase its cash return to shareholders, primarily through larger share buybacks funded by free cash flow. The bank maintains a Buy rating and sets a price target of $350 per share.
