Nvidia could spike another 23% with AI demand still in its infancy, BofA says

The Bank of America believes that Nvidia stock still represents a “compelling valuation” and has a potential upside of 23% from current levels because demand for AI is still in its early stages. The bank raised its price target to $800 from $700, citing motivation for spending in genAI from top US cloud customers.

Nvidia’s stock has surged 350% since the beginning of 2023, but the bank still sees it as offering a compelling valuation given the early stage of AI demand. The bank’s increased price target of $800 from $700 suggests a potential upside of 23% from current levels. Following the announcement, Nvidia’s shares surged 5% to a new record high of $661.19.

Bank of America analyst Vivek Arya commented that it’s still early days, but results from top US cloud customers indicate solid motivation for spending in GenAI. This week’s earnings results from tech giants such as Meta Platforms, Microsoft, Amazon, and Alphabet highlighted the significant focus on AI spending.

Arya also mentioned that while the mega-cap tech giants are leading the AI spend, other companies are beginning to map out and implement their AI roadmap, which should result in increased demand for Nvidia’s AI offerings over the coming years. He noted that enterprise genAI adoption has yet to kick off and become more material, with Nvidia benefitting from its widespread availability on public clouds and unique partnerships with various companies.

Arya expects Nvidia to report a measured revenue beat and solid earnings growth later this month. Looking ahead, he foresees Nvidia generating more than $40 in earnings per share power. He further highlighted that Nvidia is one of the few large-cap tech stocks trading at a significant growth rate, estimating that the company will maintain a dominant share of the AI market.

The diversity of Nvidia’s SKUs, covering a wide range of prices, positions the company well in the compute market, according to Arya.