For years, Nvidia (NVDA 1.02%) has been a superstar prospect in the investing world. However, the stock isn't as highly sought after at the moment as it was earlier in 2024. Nvidia's share prices are down over 22% from the peak it set in June. The stock was down even more a month ago before mounting a temporary comeback that quickly faded.
Is it time to sell Nvidia? Some might believe so. But one top Wall Street analyst thinks it's instead time to load up on the artificial intelligence (AI) stock.
NASDAQ: NVDA
Key Data Points
Behind Nvidia's decline
There are multiple factors behind Nvidia's recent decline. The delay in shipping GPUs based on the company's new Blackwell architecture is a top one. Investors had hoped the revenue from these powerful new chips would begin hitting Nvidia's top line sooner rather than later.
Nvidia's second-quarter earnings results also arrived with a thud. The company beat Wall Street's revenue and earnings estimates. However, sometimes the official estimates aren't really what analysts want. Nvidia failed to achieve the so-called "whisper numbers" in Q2.
Some investors have also been concerned that the AI boom has run its course. They worry that Nvidia's customers could reduce spending on the GPUs they need to power AI models.
Finally, Bloomberg News reported last week that the U.S. Department of Justice issued a subpoena to Nvidia as part of an investigation into potential violations by the company of federal antitrust laws. Nvidia denied receiving a subpoena, but the story caused its shares to sink further.
A "compelling" valuation
These issues could cause some investors to choose to stay on the sidelines. However, Bank of America analyst Vivek Arya thinks now is a great time to buy Nvidia stock. Arya acknowledged in a note to investors last week that "market forces could enhance near-term stock volatility." But he added that Nvidia's valuation is "compelling" with shares trading at roughly 27 times consensus earnings for fiscal year 2026 -- the cheapest valuation for Nvidia over the last five years.
Bank of America's 12-month price target for the stock is $165. That reflects an upside potential in the ballpark of 55%.
What about the Blackwell delay? BofA expects Nvidia to confirm that shipments are underway over the next several weeks. This view seems to align with comments made by Nvidia CEO Jensen Huang in the company's Q2 earnings conference call. Huang said that shipments will begin in Q4. Even without Blackwell, Arya projects that the demand for Nvidia's previous-generation Hopper chips will remain strong.
BofA doesn't believe the AI boom is anywhere close to being over. Arya wrote, "The tech industry will give itself at least another 1-2 years of intense buildout" of Nvidia's Blackwell chips. He added, "Efforts thus far with the first wave of large language models (LLM), using NVDA Hopper was just the teaser."
As for the reported Department of Justice probe, Bank of America doesn't expect any impact on Nvidia at this point. The Wall Street firm stated that federal investigations aren't unusual with big U.S. technology companies.
Is this Wall Street analyst right about Nvidia?
I can't find much to quibble about with anything Bank of America said about Nvidia. The stock's valuation is arguably the most compelling it's been in quite a while. I suspect Nvidia will confirm Blackwell shipments in the near future. The demand for the company's Hopper GPUs will almost certainly remain robust until Blackwell GPUs are available in high quantities.
BofA is almost certainly correct that the AI boom will continue for at least another year or two. Comments made by executives at cloud services giants Amazon, Microsoft, and Alphabet in their recent quarterly calls support this view.
I also agree that it's way too early to assume that any DOJ investigation will impact Nvidia. Such probes can lead nowhere.
My only qualm with Bank of America's take on Nvidia is that I'm not sure if the stock will soar 55% over the next 12 months. However, I wouldn't bet against it happening. Even if Nvidia doesn't hit BofA's price target, the beaten-down AI stock looks like a good pick to load up on during the current pullback.
