The global research department of Bank of America conducted an in-depth analysis of the USA's Semiconductors industry, especially focusing on the current status and future prospects of industry giants NVIDIA and AMD.
According to recent Research Reports, the global research department of Bank of America performed an in-depth analysis of the USA's Semiconductors industry, particularly on $NVIDIA (NVDA.US)$ and $Advanced Micro Devices (AMD.US)$the current status and future prospects of these two industry giants.
NVIDIA: Multiple factors led to a decline in performance, but long-term value remains bullish.
Since the H20 series products were officially embargoed against China on April 15, 2025, NVIDIA's stock price plummeted by 14%, while during the same period $PHLX Semiconductor Index (.SOX.US)$ and $S&P 500 Index (.SPX.US)$Dropped by 8% and 4% respectively.
Currently, four major factors are suppressing NVIDIA's stock price: First, sales in the China market are restricted (accounting for 13% - 14% of total sales, but currently only 3% - 6% of the Datacenter business); however, Bank of America believes that the risks related to the China market have been sufficiently priced in by the market; Second, the AI diffusion rules, which will take effect on May 15, may expose 10% of sovereign sales to risk; Third, gross margin is expected to return to the mid-70% range in the second quarter of fiscal year 2025, but will experience multiple sales reductions and cost pressures during this period; Fourth, the visibility of capital expenditures for Cloud Computing Service in fiscal year 2026 is relatively low.
Bank of America predicts the baseline scenario EPS for NVIDIA to be $3.97 and $5.74 for fiscal 2026 and 2027, respectively, fully considering the aforementioned risk factors. Despite facing numerous challenges, Bank of America still reaffirms a ‘Buy’ rating for NVIDIA. It believes the current stock price fluctuations present a better buying opportunity, even though it lowered the Target Price from $160 to $150 to reflect a lower EPS expectation based on a PE of 26 times for fiscal 2026.
From a valuation perspective, NVIDIA's current PE based valuation is only 16.6 times, and if calculated under the worst-case scenario (i.e., a 10% restriction from AI Diffusion rules), its fiscal 2026 PE would only be 19 times, far below its historical median of 30 times and typical cycle low value of 23 times. This indicates that even under relatively pessimistic expectations, NVIDIA's valuation remains attractive.
AMD: Performance also affected, market holds a neutral attitude.
Bank of America adjusted AMD's sales and EPS expectations based on a logic similar to that of NVIDIA, reflecting the impact of the MI308 series product embargo against China. AMD is expected to incur $0.8 billion in inventory and reserve costs in the second quarter of 2025. Assuming its gross margin for fiscal 2025 is -40%, the remaining shipment volume of the MI308 series products during the remaining time of 2025 may reach $1.33 billion, accounting for about 18% of its $7.5 billion - $8 billion Datacenter GPU shipments, and 4% of total company sales.
For the fiscal years 2026 and 2027, Bank of America expects the resistance faced by AMD to gradually diminish, assuming that the MI308 series products are the most advanced GPU products that can be sold in China, and will gradually face more local competition. Additionally, starting from the third quarter of 2025, Bank of America slightly raised AMD's gross margin by 50 basis points to reflect the reduced dilutive contribution of the MI308 series products to the gross margin, while partially offsetting cost increases due to potential tariffs and supply chain reshoring.
Bank of America has rated AMD as "Neutral," with the target price lowered from $110 to $105. This target price corresponds to a PE of 20 times, which matches a PEG of 0.9 times, based on its expected EPS of $5.29 for fiscal year 2026, which is generally consistent with the historical PEG range of 1-2 times for high-growth computing semiconductors.
Risk Radar: From Gaming Weakness to Manufacturing Dependence.
Recently, the demand in the gaming market has continued to weaken, posing a direct threat to NVIDIA's traditional core business. According to Bank of America's analysis, consumers' willingness to spend on gaming devices is declining, leading to a gradual reduction in NVIDIA's revenue share from the gaming market. Historical data shows that the gaming business once contributed about 40% of NVIDIA's revenue.
However, the year-on-year decline in sales in this field is nearing 20%, dragging down the company's overall performance and exposing NVIDIA's potential vulnerabilities in its business diversification process.
In addition, the competitive environment that AMD is in is becoming increasingly harsh, facing intense competition from NVIDIA, Intel (INTC.US), and a number of startups. NVIDIA continues to launch high-performance products in the GPU (graphics processing unit) domain, solidifying its market leadership; while Intel is continuously making efforts in the CPU (central processing unit) market, trying to regain lost ground through technological innovation and product iteration.
At the same time, numerous AI (artificial intelligence) startups are exerting pressure on AMD in specific segments with flexible market strategies and innovative technologies. Bank of America points out that AMD faces severe challenges in market share competition and needs to make greater efforts in technological innovation and market strategy to break through the encirclement.
At the same time, AMD is overly reliant on manufacturing from a single supplier.$Taiwan Semiconductor (TSM.US)$(TSMC.US) This has become a significant hidden danger for its Business development. According to Industry analysis, Taiwan Semiconductor is responsible for nearly all of AMD's chip manufacturing tasks. If there are any issues in TSMC's production process, such as insufficient capacity, technical bottlenecks, or supply interruptions, AMD's product delivery will be severely affected.
Bank of America warned that this overly concentrated supply chain layout limits AMD's ability to respond to unexpected situations, increases its operational risks, and may lead to revenue loss and market share decline during supply chain fluctuations.
Finally, the competition between the USA and China in the technology sector is intensifying, bringing significant uncertainty to the Semiconductors industry. The US government has recently implemented a series of export control policies, restricting the export of key technologies, products, and related services to China, covering a wide range, including high-end chip manufacturing equipment and advanced semiconductor materials.
According to reports, the USA has placed certain Chinese enterprises and institutions on the export control list, causing obstacles to technology exchanges and cooperation between the USA and China. This tense situation may further escalate, prompting more export control measures, increasing operational costs and market risks for companies such as NVIDIA and AMD, impacting their Global business layout and long-term development strategy, casting a shadow over the stable development of the entire Semiconductors industry.
Investment Insight: Seeking certainty amidst uncertainty.
As NVIDIA and AMD face sales restrictions in the Chinese market, local semiconductor companies are seizing a window of opportunity for development. NVIDIA expects its sales from the Chinese market to decline by approximately 4% in the 2026 fiscal year, while AMD will also face similar pressure. This indicates that local semiconductor companies in China have the opportunity to fill this market gap.
The breakthroughs of these local companies in key technology areas such as GPU (graphics processing units) and CPU (central processing units) are worth close attention from investors. Especially in high-end chip manufacturing and AI applications, any breakthrough in technology bottlenecks could lead to significant market share growth and investment returns.
The ‘AI Diffusion Rules’ introduced by the US government have a profound impact on the Global semiconductor industry. 24% of NVIDIA's global customer footprint sales come from non-China secondary and tertiary countries, including 18% from Singapore. In the worst case, up to 10% of these sales may be restricted by the AI diffusion rules, resulting in a drop in its EPS (earnings per share) by an additional 14% and 11% in the fiscal years 2026 and 2027, respectively. This situation highlights the importance of chip designers whose layouts comply with export control frameworks.
Despite facing numerous challenges, NVIDIA's valuation remains attractive. During its performance pressurized period, NVIDIA's forward PE (Price/Earnings) ratio is only 17.4 times, significantly lower than its historical median of 30 times over the past 5 years, and even below the typical value of 23 times at cyclical lows. This indicates that market panic may have overly magnified short-term risks, providing investors with an opportunity to Buy leading companies at reasonable valuations.
The business models and financial performances of NVIDIA and AMD highlight the importance of a complete Industry Chain layout. NVIDIA's total sales will decrease by 6% in fiscal year 2026 due to the embargo on the H20 series products. AMD expects its gross margin to be significantly impacted in fiscal year 2025, while its Datacenter GPU shipments may decline. This indicates that companies capable of comprehensive Industry Chain capabilities, from chip design and manufacturing to Software platform development, can better cope with market fluctuations and policy changes.
Editor/rice
