Nvidia Corp (NASDAQ:NVDA, XETRA:NVD) remains well positioned to maintain its dominant share of artificial intelligence infrastructure spending, according to Bank of America, which reiterated its ‘Buy’ rating on the chipmaker and said current valuation levels already reflect an overly cautious earnings outlook.
In a note addressing key investor concerns around gross margin pressure, custom AI chip competition, concentrated ownership and capital allocation, Bank of America analysts wrote that Nvidia could sustain a 65% to 70% or greater share of AI capital expenditure over the long term.
The firm argued that the company’s current valuation does not reflect the strength of its AI franchise and may already price in a 30% to 35% downside risk to 2027 and 2028 earnings estimates.
Bank of America said Nvidia shares are trading at around 18 times forward earnings, which it described as a seven-year low valuation, and argued that the discount compared with other large technology companies does not reflect Nvidia’s growth opportunity.
The analysts highlighted concerns around rising high-bandwidth memory (HBM) costs, but said investors may be overstating the impact on Nvidia’s profitability. Bank of America estimated that HBM content per rack could increase by approximately $200,000 to $300,000 from Nvidia’s Blackwell platform to its upcoming Rubin architecture, while rack pricing could rise by $2 million to $3 million due to upgrades across computing, networking and software.
As a result, the analysts expect Nvidia’s gross margins to remain around the mid-70% range, supported by the company’s pricing power, scale and supply-chain position.
Bank of America also addressed competition from custom AI accelerators, noting that Nvidia’s GPU revenue has grown roughly 700-fold since Google introduced its Tensor Processing Unit in 2015. The firm pointed to the development of competing chips from companies including Amazon and Meta but said Nvidia has continued to gain share, with hyperscaler sales rising 115% year over year, nearly twice the pace of cloud capital expenditure growth.
The analysts also noted that Nvidia’s ownership concentration and strategic investments remain areas of investor focus. Nvidia’s strategic investments, which total about $65 billion, represent less than 35% of free cash flow, according to Bank of America, leaving capacity for potential dividends and share buybacks.
Bank of America believe that upcoming Nvidia earnings could further demonstrate the company’s advantages in products, pricing and supply-chain execution.
Despite its position in AI infrastructure, Nvidia shares are up about 3% year to date, compared with an 82% gain for the Philadelphia Semiconductor Index, according to the firm. Shares traded hands at $199 on Wednesday afternoon.