Nvidia Remains a Top Pick Despite Headwinds: BofA Securities Maintains Buy Rating
BofA Securities analyst Vivek Arya has maintained a Buy rating on Nvidia Corp NVDA, setting a price target of $165. This optimistic outlook comes despite acknowledging significant headwinds facing the tech giant, including delayed product launches, margin pressure, and potential regulatory scrutiny.
Key Takeaways:
- Nvidia remains a top sector pick despite headwinds: Arya believes Nvidia’s strong growth opportunities outweigh current challenges.
- Buy rating justified by robust growth: The price target reflects a 42x calendar 2025E PE ex-cash, falling within Nvidia’s historical 21x-67x forward-year PE range.
- Supply chain data crucial for recovery: Arya highlights the importance of upcoming supply chain data points, which will confirm the readiness of new "Blackwell" product shipments as a key catalyst for fundamental recovery.
- AI capex and monetization key but not immediate: While Arya acknowledges the importance of AI capex and monetization for Nvidia’s future, he emphasizes that their impact won’t be felt until at least 2026.
Navigating the Headwinds
Arya acknowledges the significant headwinds currently facing Nvidia, including:
- The Blackwell delay: This delay in the release of the new "Blackwell" chip represents a major obstacle for Nvidia, particularly in the face of fierce competition.
- Gross margin pressure: Pressure on gross margins is a direct result of ongoing market competition, forcing Nvidia to make concessions on pricing.
- Regulatory headwinds: Nvidia is facing potential regulatory pressure, including a possible investigation by the Department of Justice, which could impact stock performance.
- Competitive landscape: Nvidia faces intense competition from companies like Meta Platforms Inc META, which is developing its own AI capabilities.
- AI monetization uncertainty: The market is unsure when and how AI capabilities will be effectively monetized, which creates a degree of risk for Nvidia.
- Cloud capex concerns: There’s uncertainty surrounding future cloud computing capital expenditure, which could impact demand for Nvidia’s products.
- Market headwinds: Additional market headwinds are present, including weak September seasonality, rising interest rates, and upcoming elections.
A Buy Opportunity Despite the Challenges
Despite these challenges, Arya believes that the headwinds could create a compelling buy opportunity for investors. This optimistic stance is based on the following factors:
- Valuation attractiveness: The stock currently trades at ~27x calendar year 2025 PE, which is within the lowest quartile of valuation in the past five years compared to the median 36x PE. This suggests that Nvidia is undervalued relative to its historical performance.
- Long-term AI potential: Arya emphasizes the vital role of AI in protecting existing moats and large profit pools in key markets like search, social, and enterprise workloads. He believes the industry will continue to heavily invest in the "Blackwell" chip for at least another one to two years.
- Next-gen LLMs driving growth: The analyst believes that the true capability of AI will only be realized with the release of next-generation large language models (LLMs) like OpenAI GPT-5 and Meta’s Llama 4. These models will necessitate significant investment in Nvidia’s hardware, further driving growth.
The Importance of Supply Chain Data
Arya’s analysis highlights the critical importance of upcoming supply chain data points. These data will provide insights into the readiness of new "Blackwell" product shipments, confirming or refuting the potential for a fundamental recovery in Nvidia’s performance.
AI: A Long-Term Growth Driver
While AI is a major growth driver for Nvidia, Arya accurately points out that its impact on the company’s financials will be less immediate. He predicts that significant monetization of AI capabilities won’t occur until at least 2026. This is a crucial point for investors to consider, especially in the face of current market headwinds and intense competition.
Navigating the Market Volatility
Nvidia’s stock is likely to remain volatile in the upcoming months due to the complex interplay of various factors. While the potential for growth remains high, investors need to be aware of the significant headwinds that the company faces and the importance of upcoming supply chain data.
Arya’s analysis presents a balanced perspective on Nvidia’s future. While he remains optimistic about the company’s long-term prospects, he emphasizes the importance of acknowledging the challenges and recognizing that near-term stock performance remains uncertain.
