Bank of America Securities semiconductor analyst Vivek Arya used a Wednesday morning CNBC Squawk Box appearance to share what he’s watching in NVIDIA’s (NASDAQ:NVDA | NVDA Price Prediction) Q2 earnings tonight when the company reports at 4:20 PM ET. Arya argues that the market already expects an earnings beat, but investors want to better understand the current state of AI investment across the industry:
“The focus tonight will probably be more on the balance sheet and its disclosures around how it’s funding the ecosystem as opposed to the EPS beat, because the fundamentals are very strong,” Arya said.
Why Another Nvidia Earnings Beat Likely Won’t Move the Stock
At NVIDIA’s scale, incremental EPS surprise potential is limited, which explains why the stock has struggled to rally on strong earnings reports in the past. NVIDIA stock has fallen 1-5% the day after each of its last four earnings reports. The last four reports were all beats with surprise percentages ranging from 3.64-5.46%, and every one produced a negative day-of reaction, including a 5.46% drop after the Q4 FY26 report.
The balance sheet is where the real story is being written. In Q1 FY27, NVIDIA reported $50.34 billion in operating cash flow, $48.55 billion in free cash flow, and $119 billion in total supply-related commitments. The board authorized an additional $80 billion share repurchase and raised the quarterly dividend from $0.01 to $0.25 per share, returning $20 billion to shareholders in Q1. On the earnings call, CFO Colette Kress said NVIDIA intends to “return roughly 50% of free cash flow to shareholders this year.”
Bank of America Says Nvidia Is Still 30-50% Too Cheap
Arya believes Nvidia is trading at too low of a PEG valuation ratio, which is a measure that takes a stock’s forward P/E ratio and divides by the expected annual earnings growth rate. A stock trading at a PEG of 1x is generally considered fairly valued, and means that investors are paying one unit of P/E multiple for every unit of annual earnings growth.
“NVIDIA is trading at 0.3 times earnings growth. So we think that the right valuation is somewhere between 0.3 and 1 times. And that suggests that yeah, there is significant growth,” Arya said. That framework supports his conclusion that the stock is 30-50% too cheap relative to its fundamental earnings growth.
NVIDIA currently trades at $210.21, down 1.3% heading into earnings, but up 14.37% year to date. The stock has a forward P/E near 25 and an analyst target price of $304.73, with 10 strong-buy and 48 buy ratings against two holds and one sell.
$1 Billion in Free Cash Flow Every Weekday
Arya’s most striking projection: “By this time next year, NVIDIA will be generating one billion of free cash flow every weekday. There is no other company on the planet that has managed to do that,” Arya said. The number reframes why capital allocation disclosures carry more weight than a top-line beat.
What Arya Wants to See on the Demand Side
Arya described broad-based demand: “We have heard from every one of its large customers. The demand environment is very strong. NVIDIA has very good access to supply. It’s in front of a brand new product cycle with Vera Rubin. And it has a diversity of customers.”
On the last call, Jensen Huang said NVIDIA is “on track to commence production shipments of Vera Rubin in the second half of this year, starting in Q3,” and cited visibility to nearly $20 billion in standalone CPU revenue this year tied to the Vera platform.
What to Watch After the Close
Arya believes Nvidia’s balance sheet will reveal what the company’s next phase will bring. Investors should watch how aggressively Nvidia funds its ecosystem, secures future supply, ramps Vera Rubin, and returns cash to shareholders. If Arya is right about $1 billion in weekday free cash flow, tonight’s biggest question is what the company plans to do with all that money.
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