Nvidia just reported its most profitable quarter ever, yet its stock price declined. This pattern has emerged, with the chipmaker’s shares falling after three of its last four earnings calls, despite consistently strong financial results.
Bank of America remains optimistic, however. Lead analyst Vivek Arya and his team reiterated their “buy” rating yesterday, designating Nvidia as a top pick and increasing their price target from $320 to $350. This suggests a potential 56.6% increase from the current price of $223.47.
The investment note’s headline read: “Beat/raise speaks volumes, ignore noise, buy top pick.”
Decoding the Jargon
For those unfamiliar with Wall Street terminology, a “beat” signifies that a company’s earnings exceeded analysts’ predictions. A “raise” indicates that the company’s guidance, or forecast for the following quarter, also surpassed expectations. When both occur simultaneously, it typically signals very positive news. Bank of America advises investors to disregard the stock’s recent correction, which they consider “noise.”
Record-Breaking Quarter
Nvidia’s first-quarter revenue reached a record $81.6 billion, an 85% increase year-over-year and a 20% rise from the previous quarter. Analysts had anticipated approximately $79.1 billion. Nvidia exceeded this by 3.1%, or roughly $2.5 billion, in a single quarter. To put it in perspective, the prior quarter’s revenue was already a record at $68.1 billion. Nvidia added $13.5 billion on top of that within three months.
The primary driver behind this growth is data centers, the large-scale server facilities that power AI models, cloud computing, and much of the internet.
Data center revenue alone reached $75.2 billion, up 92% year-over-year. This figure is almost evenly split between major cloud providers like Amazon and Microsoft, and a rapidly expanding group of AI companies, factories, and industrial clients.
Adjusted earnings per share were $1.87, surpassing the $1.73 analysts had predicted. The gross margin, representing the revenue remaining after production costs, remained at 75%. Free cash flow for the quarter, reflecting the actual cash generated by the company after all expenses, reached $48.6 billion. During the earnings call, Jensen Huang commented, “Agentic AI has arrived, doing productive work, generating real value and scaling rapidly.”
Agentic AI is currently a major topic of discussion on Wall Street.
Market Growth and Nvidia’s Position
The core argument centers on the size and growth rate of the market Nvidia is targeting.
Bank of America previously estimated the total AI market at $1.7 trillion. They now project it to quadruple, exceeding $3 trillion by 2030. Within this market, they anticipate Nvidia will hold approximately 78% of the AI accelerator market, which comprises chips specifically designed for AI workloads. This essentially gives Nvidia a near-monopoly in what Bank of America considers the fastest-growing technology market they have ever tracked.
The bank also recently upgraded its assessment of a newer opportunity. Nvidia is entering the agentic CPU chip market, which involves processors designed for AI agents, software capable of autonomously performing complex tasks without human intervention. Bank of America increased its estimate for this market from $125 billion to $200 billion, and states that Nvidia has already secured $20 billion in demand for the second half of this fiscal year.
The demand is not speculative. Customer purchase commitments totaled $145 billion this quarter, up from $95 billion just three months prior. AWS alone has committed to deploying approximately 1 million Nvidia GPUs through 2027. These are contractual agreements, not projections.
Risks and Considerations
Bank of America identifies six formal risks. Two are particularly relevant for those holding or considering Nvidia stock.
The first is the stock’s own substantial presence in the market. Nvidia now accounts for 8.3% of the S&P 500 index, the benchmark that tracks the 500 largest public companies in America. Approximately 78% of active fund managers already own the stock. With such a high level of ownership, there are fewer potential new buyers to drive the price higher.
The second risk involves custom chips. Major hyperscale cloud companies like Google, which recently launched its eighth-generation AI chips specifically designed to reduce reliance on Nvidia, are investing heavily in in-house alternatives. Bank of America counters that Nvidia is still expected to maintain over 70% of the accelerator market long-term, arguing that full-platform support and AI factory infrastructure are difficult for custom chips to replicate.
There is also a recurring criticism that Nvidia’s investments in companies like OpenAI and Anthropic, as a vendor selling them chips, constitute circular spending.
Financial Projections
Bank of America raised its earnings-per-share estimates by 9% for fiscal year 2027 (to $9.09) and 15% for fiscal year 2028 (to $13.27). In other words, Nvidia earned $4.55 per share last fiscal year. Bank of America expects that to roughly double to $9.09 this year, then reach $13.27 the following year. Earnings per share growing at 43% annually is rare for any company, especially one already valued at $5.5 trillion.
At its current price, Nvidia trades at 19.7 times its estimated 2027 earnings. A metric that adjusts the P/E for growth rate, where lower is better, sits at 0.5x against a Mag-7 average of 3.9x.
Free cash flow is projected to increase from $96.7 billion last fiscal year to $186.8 billion in 2027 and $282 billion in 2028. The company also increased its quarterly dividend 25-fold, from $0.01 to $0.25 per share, and announced an additional $80 billion share buyback authorization, bringing the total repurchase capacity to roughly $120 billion.
The $350 price target is based on 26x estimated 2027 earnings, within Nvidia’s historical range of 25x to 56x. The next significant event is CEO Jensen Huang’s keynote at Computex on June 1, where Bank of America anticipates he will detail Nvidia’s agentic AI roadmap and CPU strategy.
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