Bank of America said Nvidia shares are trading 34% to 50% below fair value, based on a new valuation framework that still includes the financing risks investors have been focused on. Analyst Vivek Arya used a sum-of-the-parts free cash flow approach to reassess Nvidia’s intrinsic value, and BofA kept its buy rating with a $350 price target.
BofA used a free cash flow breakdown instead of a simple P/E model
Arya did not rely on a standard price-to-earnings method. Instead, he valued Nvidia’s different business lines separately through their free cash flow and then added them together. The report says Nvidia is no longer just a chip seller and has been putting significant capital into the broader AI ecosystem, which is one of the main reasons the market has discounted the stock.
In the report, Arya wrote that the discount "may overstate the risk and instead create an attractive entry point."
Capital support commitments were estimated at about $300 billion
BofA estimates Nvidia has committed about $300 billion in capital support to ecosystem partners. Of that amount, about $70 billion is tied to direct equity investments, while another roughly $230 billion consists of residual value guarantees, financial guarantees, or backstop-type commitments. In practical terms, the report says Nvidia is not only selling the tools used in the AI buildout, but is also acting as a direct capital provider.
Ohio data center support and equity stakes were highlighted
Among the examples cited, Nvidia recently agreed to provide up to $105 billion to support construction of a data center campus in Ohio. OpenAI is expected to lease the site. Nvidia has also disclosed sizable equity holdings in SpaceX and Intel, according to the report.
Arya said the strategic logic behind these moves is clear: Nvidia wants to make sure every critical input in the AI transition is in place, including chip supply, land, and power. He also said the strategy can help Nvidia diversify risk rather than rely entirely on cloud giants that are developing custom chips and competing with Nvidia.
BofA also flagged the downside if AI demand cools
The strategy comes with trade-offs. Arya said the current setup makes these investments worth trying, pointing to stable chip leasing rates, continued scarcity of computing resources, and Nvidia’s strong free cash flow generation relative to peers.
At the same time, he warned that if AI demand weakens, Nvidia’s revenue growth rate and balance sheet could come under pressure together.
Stock move, investor caution, and buyback recommendation
Nvidia shares fell 2.5% on Tuesday to close at $219, while AI-related stocks broadly moved lower. The stock is still up about 18% for the year, but remains roughly 7% below its May high, a sign that investors are still cautious about Nvidia’s ecosystem bet.
BofA said that if Nvidia wants to counter concerns about weakening earnings quality and push the stock back toward what the market would see as a fair valuation, the strongest step would be to return more capital to shareholders through buybacks. Nvidia currently plans to return about half of its free cash flow to shareholders through dividends and buybacks.
Second-quarter results are due on Aug. 26
Less than a week after the report was published, Nvidia is set to release fiscal 2027 second-quarter earnings after the market close on Aug. 26 Eastern Time, covering the period through July 26. Wall Street is broadly expecting about $92 billion in revenue, slightly above Nvidia’s own forecast of $91 billion.
That earnings release is likely to serve as the first major test of BofA’s undervaluation call.