- Nvidia stock remains a "top pick" at Bank of America even after its AI-fueled, year-to-date rally of 163%.
- After meeting with Nvidia's CFO, one the bank's main takeaways was that demand for the company's AI chips appears "sustainable."
- These are five reasons why Bank of America has confidence in its $500 price target on Nvidia.
Even after Nvidia's AI-fueled, year-to-date rally of more than 160%, Bank of America still calls it a "top pick" and believes there's more room for the stock to run.
The bank rates Nvidia stock at a "Buy" with a $500 price target, representing potential upside of 29% from current levels. BofA has called Nvidia the "picks and shovels leader in the AI gold rush" as the company virtually controls the market for high-performance GPU chips that help enable generative AI chatbots like ChatGPT and Bard.
After an investor meeting with Nvidia's CFO and senior vice president of gaming, Bank of America analyst Vivek Arya concluded that demand for the semiconductor company's AI chips like the H100 appears sustainable, which is an encouraging sign for investors who are betting generative AI has more lasting power than Web 3.0 or the metaverse.
These are the five reasons why Arya is staying bullish on Nvidia, according to a Wednesday note.
1. "Reassured that Nvidia's recent surge of demand in data center is unique and sustainable with no evidence of pull-ins or customer/regional concentration risk."
2. "Mix tailwinds in second half as more customers move to latest-gen/transformer optimized H100 (2-3x average selling price of prior-gen A100)."
3. "Nvidia's market share in AI inference has solid headroom as compute requirements in large language models are well above what traditional CPU can handle (currently 90%+ share of legacy inference)."
4. "Underappreciated opportunities for Nvidia to expand its market from just AI accelerators (GPU) into high-performance CPU (Grace), data processing (Bluefield DPU) and Mellanox infiniband + Ethernet networking."
5. "Gaming (25% of sales) could be on verge of a sustained recovery in second half with solid adoption of new Ada 4060 and with 80%+ of Nvidia's 200+ million deployed base of gamers using 3060 and older gaming GPU."
The bullish prospects for Nvidia could translate into big profits, according to the note.
"Net-net, we gain more confidence Nvidia can support long-term earnings per share above $20, based on 65% accelerator market share," Arya said.