Nvidia Trades At 50% Discount

Bank of America says so. The discount may be 34%, but its analysts say it could be as high as 50%. The Bank of America price target for Nvidia is $350. It trades at $218 today.

The analysts who made the statement with such an aggressive target believe the path there is simple. The money is locked up in free cash flow, especially when investors look at the sources that make up this number. Another factor is that the market is “overstating” the risk of AI in general.

Nvidia (NASDAQ: NVDA | NVDA Price Prediction) has spread its bets across the industry, which the analysis says is the right call by Nvidia management. “The strategic intent is clear: NVDA is committed to the transformational nature of AI and to securing every input,” including chip supply, land and power,” B of A writes.

The analysis is flawed for several reasons. It is very rare to find a price target so high, unless it is among Nvidia’s wild enthusiasts. Nvidia’s all-time high is $236, set in mid-May. The overall AI sell-off is driven by the debt the industry has taken on for data centers, and the concern that AI will not have the commercial adoption the sector’s cheerleaders assume.

Nvidia’s risks are actually simple to understand. One is that it is a chip maker which, with its technology lead, is the arms merchant to the entire AI industry. The other is that it is a banker. It provides capital, or backstops investments in AI companies and the infrastructure that lets them operate at a scale that implies massive demand for decades.

At the top of its list of cash investments are those in private-market leaders. It paid $30 billion for ownership in OpenAI earlier this year. It committed “up to” $10 billion to invest in Anthropic. The pessimistic part of the market criticizes this, saying the money is often used to buy Nvidia chips. However, traditional accounting rules have not changed to prevent this approach.

Nvidia, the banker for AI infrastructure, recently put more money on the table. It has offered $105 billion in credit support for a new data center in Ohio. “OpenAI will be the customer. SB Energy will build, own, and operate the data center under a 20-year lease to OpenAI.” Some of that money will go toward securing the land and supplying power. AI data centers are notorious for the massive demand for electricity. That, by itself, is a risk for most of these centers. So is the chance that laws and ordinances could block these projects. The Information says data center bans have hit over 500 locations.

The fear of the risk of data centers’ capital commitments has shown up in the interest rates for this capital. Even Meta (NASDAQ: META) is being hit by high interest rates for a project near El Paso.

The 50% premium B of A has put on the shares, based on current AI expansion challenges, is a particularly huge one. Not much negative news from the sector would be needed to push Nvidia stock the other way.

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