Nvidia Trades At 50% Discount

By Douglas A. McIntyre Published Aug 19, 10:56AM EDT

Quick Read

Bank of America set a $350 price target for Nvidia, calling the $218 stock a 50% discount driven by strong free cash flow and overstated AI risk.
NVDA committed $30 billion to OpenAI and $105 billion in Ohio data center credit while META battles high interest rates on its own AI projects.
Data center bans across 500 locations and AI's unproven commercial adoption pose serious headwinds to BofA's aggressive Nvidia price target.
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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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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.