Nvidia shares could be trading at a discount of as much as 50% as investors overestimate the risks surrounding the artificial intelligence chip leader, according to Bank of America.
The bank’s conceptual sum-of-the-parts analysis, based on Nvidia’s free cash flow, suggests the stock is currently valued at a 34% to 50% discount, even after accounting for potential financing risks. BofA analyst Vivek Arya said the gap could indicate that markets are pricing in risks more aggressively than warranted, creating a potentially attractive opportunity for investors.
Nvidia shares fell 2.5% to $219 on Tuesday as AI-related stocks broadly declined. Despite the recent weakness, the company’s stock remains up about 18% this year, although it is roughly 7% below its May high.
Read for more information :- Bank of America Bets Against Canadian Dollar as Trade Risks and Yen Support Grow
Nvidia Expands AI Ecosystem Investments
Nvidia’s valuation comes amid an increasingly aggressive strategy to invest across the broader AI ecosystem. The company recently agreed to provide as much as $105 billion to support an Ohio data center campus expected to be leased by OpenAI. Nvidia has also disclosed significant investments in SpaceX and Intel.
BofA estimates that Nvidia has committed approximately $300 billion in capital toward ecosystem partners. About $70 billion of that is expected to come through equity investments, while another $230 billion represents residual-value guarantees or financial backstops.
According to Arya, the strategy reflects Nvidia’s broader effort to secure critical resources needed for AI expansion, including semiconductor supply, land and power. The investments could also help the company diversify its exposure as major cloud providers increasingly develop their own AI chips.
Growth Opportunity Comes with Risks
BofA believes Nvidia’s strategy remains attractive under current market conditions, supported by strong GPU rental rates, limited computing capacity and the company’s industry-leading free cash flow generation.
However, the bank cautioned that a slowdown in AI demand could put pressure on both Nvidia’s growth trajectory and balance sheet. The company’s expanding financial commitments could therefore become a greater concern if demand for AI infrastructure weakens.
Buybacks Could Boost Investor Confidence
BofA said one of the strongest ways for Nvidia to address concerns about earnings quality and improve its valuation would be to increase shareholder returns. A larger commitment of free cash flow toward stock buybacks could help strengthen investor confidence and potentially support a re-rating of the shares. BofA maintains a Buy rating on Nvidia and a $350 price target.
Also Read :- Nvidia Invests $1.5 Billion in SoftBank-Linked Data Center Developer
