Last week's financial report failed to boost Nvidia, the AI "darling" for the past two years, but instead suffered a 11% decline in the first two trading days of September. The questioning of the "AI bubble" has resurfaced, and concerns about Nvidia have followed suit.
However, a recent report from Bank of America believes that the skepticism about AI will be in vain at least until 2026. The current market is still in the first wave of the language model (LLM) frenzy, and the use of Nvidia's Hopper (chip) is just the beginning.
Bank of America stated that the recent unfavorable environment has made Nvidia's valuation look attractive, providing investors with an enticing buying opportunity. Nvidia remains the bank's top choice in the industry, with a target price of $165, which means there is still more than 50% upside potential.
Bank of America supports Nvidia: Blackwell chip's AI training capability is expected to increase fourfold.
In a recent report by Bank of America analysts including Vivek Arya, it is believed that the current doubts about AI capital expenditure and monetization can be understood, but at least until 2026, these doubts will be in vain.
Bank of America believes that the market does not need to worry, as capital expenditure is necessary to drive the success of the next generation of LLM (Large Language Model). AI capital expenditure not only drives new business opportunities, but is also crucial for existing moats and profit pools in search, social, and enterprise work.
The Bank of America report states:
"The technology industry will spend at least another year or two intensively building Nvidia's Blackwell chip, which will increase its AI training capability fourfold and its inference capability by more than 25 times. So far, it is still in the first wave of the language model (LLM) frenzy, and the use of Nvidia's Hopper (chip) is just the beginning."
Although Nvidia's stock price lacks positive catalysts in the short term, its stock price is expected to be supported in the next few years as enterprise customers use Nvidia chips, including the Hopper and Blackwell series, to build AI capabilities. The report said:
"The key catalysts for fundamental recovery for Nvidia may be the supply chain data in the coming weeks to confirm the readiness of shipments for the new Blackwell product."
Bank of America still ranks Nvidia as its top pick stock.
On the first trading day of September, Nvidia's stock price fell 9.5%, with a market capitalization shrinking by nearly 28 billion US dollars in a single day, marking the largest decline in market capitalization among US stocks.
Nvidia's stock price fell after the release of its financial report, highlighting investor concerns about the stock's overvaluation, slowing revenue growth, and the sustainability of the overall AI chip investment frenzy. Nvidia's third-quarter revenue guidance shows that revenue growth will slow from triple-digit to nearly 80%, which some interpret as a sign of cooling demand for the company's AI chips. The financial report has raised doubts about the sustainability of massive investments in AI hardware.
Furthermore, on Tuesday after the market closed, there were reports that the US Department of Justice has issued a subpoena to Nvidia for an antitrust investigation, adding to the regulatory risks and further impacting Nvidia's ability to rebound on Wednesday.
In short, the factors that contributed to Nvidia's sharp decline include financial reports that didn't meet Wall Street's highest expectations, production issues with the highly anticipated Blackwell chip, recent regulatory scrutiny, cautious investor sentiment towards AI trading, and overall market volatility.
However, according to Bank of America's report, the current doubts and unfavorable factors combined can create a "strengthened" buying opportunity for investors, as Nvidia's stock price has fallen to the lowest quartile of valuation in the past five years.
Bank of America reiterated that NVIDIA is their top pick in the industry and gave the stock a buy rating with a target price of $165. This target price implies that Bank of America expects NVIDIA's stock price to rise by about 55% from Wednesday's closing.
In addition to Bank of America, some market participants believe this is a good time to buy Nvidia. Piper Sandler analyst Harsh Kumar still bullish on Nvidia, pointing out strong demand for Nvidia's Hopper chip in the market, which is expected to further increase in the second half of the fiscal year. At the same time, revenue from the Blackwell chip is basically on track.
Wedbush Securities analyst Daniel Ives said that Nvidia's chips have become the new oil and gold in the IT field, driving the AI revolution and currently the only choice.
On Thursday this week, Nvidia's stock price initially fell nearly 1.4%, but quickly turned higher. During the morning session, it rose more than 3.2% and then gave back most of the gains. It closed up more than 0.9%, rebounding after two consecutive days of decline and marking the highest closing level since August 9 after two days of consecutive decline.
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