BlockBeats reported on Aug. 26 that Bank of America reaffirmed its Buy rating on Nvidia (NVDA) and kept its $350 price target.
The bank said Nvidia’s second-quarter revenue and guidance could again come in 3% to 4% above market expectations, helped by the expansion of Vera Rubin mass production. Even so, BofA said the earnings figures themselves are not the most important part of this report.
Focus shifts to multi-year off-balance-sheet commitments
According to Bank of America, the market should pay closer attention to whether Nvidia discloses multi-year off-balance-sheet commitments signed to secure chip supply, power, AI models and customer demand.
The bank said quantifying those potential liabilities would not fully remove the risks tied to AI infrastructure buildout, but it could help investors reassess Nvidia’s currently pressured valuation.
BofA says the valuation discount may be too deep
Bank of America noted that in September 2025, when Nvidia announced a $100 billion OpenAI investment plan tied to 10GW of compute, the company was trading at about 27x forward EV/EBITDA. Since then, that valuation multiple has dropped 44% to about 15x, which is less than half of AMD’s roughly 32x.
In the bank’s view, Nvidia’s current discount already overstates a worst-case funding scenario worth about $500 billion, equal to 10% of enterprise value. That figure includes $150 billion to $200 billion in multi-year procurement commitments and cloud service contracts.
BofA added that if AI demand remains strong, Nvidia may not need to absorb the costs of idle capacity or stranded assets.
Bank also calls for higher shareholder returns
Beyond valuation, Bank of America said Nvidia should increase shareholder returns. As a comparison, Apple returned 82% of its free cash flow to shareholders during fiscal years 2013 through 2025 and repurchased about 43% of its shares outstanding. By contrast, the market expects Nvidia’s free-cash-flow payout ratio for fiscal 2027 to 2028 to be only about 37%.
The bank said raising that level to 50% to 75% could offer stronger support for the stock price. It also estimated that Nvidia could generate about $1 billion in free cash flow per day next year, enough to support both ecosystem commitments and stock buybacks.