Bank of America: NVIDIA's Forward P/E Ratio Hits 7-Year Low, Market Pricing in a Nonexistent Risk

BlockBeats News, July 9th - Bank of America Securities pointed out in a research report that NVIDIA's current valuation has dropped to the lowest level since the beginning of this AI bull market—its forward P/E ratio is only about 18 times, hitting a near 7-year low, compared to an estimated 21.5 times for the 2027 fiscal year and further dropping to 14.7 times for the 2028 fiscal year. This valuation is not only significantly below its historical range but also forms a discount of about 30%-35% compared to the average 22 times/19 times forward P/E ratios of the five tech giants—Apple, Microsoft, Google, Amazon, Meta—for 2027/2028.

Bank of America's core assessment is that the current market pricing implies a downside expectation of as high as 30%-35% in NVIDIA's 2027/2028 EPS, a hypothesis that is fundamentally unsound. From a PEG perspective, NVIDIA's 2027 PEG is only 0.3 times, much lower than Apple's 2.7 times, Microsoft's 1.0 times, and Google's 1.9 times. NVIDIA's stock price has only risen by 3% year-to-date, significantly lagging behind the 82% surge of the Philadelphia Semiconductor Index. Bank of America believes this significant deviation reveals an "enhanced buying opportunity," reiterates a buy rating, sets a target price of $350, implying over 70% upside from the current price.

Bank of America further dissected the market's two main concerns. Regarding memory cost impacts, Bank of America believes the market is both overestimating cost pressures and underestimating NVIDIA's pricing power—upgrading from Blackwell to Vera Rubin, the incremental cost of HBM per rack is about $200-300k, but the entire rack price is expected to increase by $2-3 million to $6-7 million, driven not only by memory but also including Vera CPU, NVLink, Quantum Ethernet network, and other components that do not require HBM, as well as a series of software features that reduce inference costs; NVIDIA has built a strong moat through supply chain pre-purchase commitments of over $119 billion, and the gross margin is expected to remain in the mid-70% range. Regarding ASIC competition, Bank of America responded directly with data—since Google TPU's launch in 2015, NVIDIA's GPU accelerator sales have increased by about 700 times, with sales to hyperscale cloud vendors growing 115% year-on-year, roughly twice the pace of cloud computing capital expenditure growth, showing that its wallet share among hyperscalers is still expanding steadily.

Bank of America expects NVIDIA to maintain a market share of 65%-70% or more in AI computing power capital expenditure in the long term, and the upcoming earnings conference call is expected to be a key catalyst to clarify its pricing power and moat to the market.