BofA keeps buy rating on Nvidia and says the stock remains undervalued
BofA Securities analyst Vivek Arya said in a new report that Nvidia shares are still 34% to 50% below fair value. He kept his $350 price target on the stock, which implies nearly 60% upside from Tuesday’s close.
Arya said the market may be overpricing the related risks.
BofA estimates about $300 billion in ecosystem commitments
According to Bloomberg, BofA estimates that Nvidia’s total capital commitments to ecosystem partners have reached about $300 billion. Of that amount, roughly $70 billion is in equity investments, while about $230 billion is credit support.
The support covers items such as residual-value guarantees on equipment, lease backing, and power-payment guarantees. BofA stressed that the figure is not the same as liabilities booked on Nvidia’s balance sheet, and it is also not a one-time cash outlay. Whether it turns into actual losses will depend on project commercialization, customer performance, and equipment disposal.
OpenAI, SpaceX and Intel stakes are part of the picture
The report said Nvidia’s discussions with OpenAI over an Ohio data center lease guarantee once reached as high as $250 billion. Nvidia shares fell nearly 5% on the day that news broke. Nvidia later reduced the guarantee to below $120 billion.
More recently, Nvidia signed a final agreement with SoftBank-backed developer SB Energy, setting a maximum $105 billion credit guarantee for the PORTS-Pike technology campus. OpenAI will be the sole tenant under a 20-year lease.
Nvidia also disclosed this month that as of June 30 it held about $21 billion of SpaceX equity and about $30 billion of Intel equity. Together, the two stakes were worth more than $50 billion, which BofA cited as a concrete example of Nvidia investing in customers and companies across the AI supply chain.
BofA says bigger buybacks could help address market concerns
BofA said the clearest way to ease concerns about declining earnings quality and circular financing would be for Nvidia to increase the share of free cash flow returned to shareholders through buybacks.
Nvidia currently returns about 50% of free cash flow to shareholders, below the 75% to 100% range common among peers. Arya said larger repurchases could help support a re-rating of the stock.