Written by: Rita

Trends Guide

On July 7, Bank of America released a research report on Nvidia, reiterating a buy rating with a target price of $350. The current stock price is $195.55, implying about a 79% upside potential. Bank of America's core argument is that Nvidia is currently trading at 15.7 times the expected 2027 price-to-earnings ratio, which is the lowest level in seven years. Concerns over HBM cost pressures, competition from custom ASICs, and crowded positions may have been overestimated, implying about a 30-35% profit discount. Bank of America believes this discount is unreasonable. Nvidia continues to be a high-quality growth target with pricing power, scale effects, and supply chain barriers in AI computing power.

HBM Cost is a Pressure, but Pricing Power is a Stronger Force

The market is concerned that rising HBM prices will squeeze Nvidia's gross margins. Bank of America calculated that from Blackwell to Rubin, the HBM cost per cabinet increased by about $200,000 to $300,000, while the selling price of the entire cabinet increased by $2 million to $3 million. This is because Nvidia upgraded multiple components such as computing chips, NVLink networks, and software stacks simultaneously in each generation of products.

Compared to Blackwell, Vera Rubin improves inference performance per watt by 10 times, inference performance by 3.3 times, and training performance by 5 times. These performance upgrades allow Nvidia to pass the costs onto customers. Bank of America expects Nvidia's gross margin to remain around 75%.

ASIC Competition is Not New, Nvidia Wins by 700 Times

Google TPU was launched in 2015, Amazon Trainium in 2020, and Meta MTIA in 2023. Custom ASICs have been around for nearly a decade. However, Nvidia's GPU accelerator revenue has grown 700 times during this period.

The reason is simple: ASICs are narrow-purpose chips that can only run specific workloads and are only available to specific cloud vendors. Nvidia's GPUs are a general-purpose platform with a complete software ecosystem and supply chain support. Nvidia's sales to hyperscale customers grew by 115% year-on-year, nearly double the growth rate of cloud capital spending, indicating that Nvidia's "wallet share" among cloud vendors is still increasing. Bank of America expects Nvidia to maintain a share of over 65-70% in AI capital spending.

Crowded Positions and Ecosystem Investment: Real Risks Exist, But Have Been Factored into Valuation

Nvidia has a weight of 1.15 times in the S&P 500 index, with 78% of actively managed funds holding Nvidia. Crowded positions are a real concern, but this reflects the market's perception of Nvidia's industry position and is not a bubble signal.

Nvidia's total investment in ecosystem partners is about $65 billion, including OpenAI, Anthropic, Intel, CoreWeave, etc. Bank of America estimates that these investments account for only about 35% of the free cash flow for 2026 and about 17% of the free cash flow for 2027, which will not affect the company's ability to continue repurchase and dividend payments.

Trends Perspective

The core logic of this report from Bank of America is that Nvidia is priced by the market as a "cyclical stock," but its business model has "growth stock" attributes. Product iterations drive price increases, scale effects bring cost advantages, and a software ecosystem creates customer stickiness.

However, one question is worth following up on: If Nvidia is mispriced by 30%, why has this mispricing persisted for so long? Crowded positions and ecosystem investments are only surface reasons; the deeper issue is investor skepticism about "whether AI capital spending is sustainable." The capex-to-EBITDA ratio of hyperscale vendors has already exceeded 70%, and the market is concerned that any reduction in capex will directly impact Nvidia's revenue. Bank of America responds to this concern by stating that "Nvidia's wallet share among cloud vendors is still expanding," but does not directly address "if total capex reduction can be offset by expanding wallet share."

For investors, the most valuable part of this report is not the buy rating itself, but the thought framework it provides on how to distinguish which risks are real and which have already been fully absorbed by valuation when the market's concerns about a high-quality growth stock are exaggerated.

Disclaimer

This article is a整理 and interpretation of third-party brokerage research reports (Bank of America, July 7, 2026) by Trends Research. The ratings, target prices, profit forecasts, and related judgments cited in the text are the views of the brokerage analysts and represent the positions of their respective institutions, not the views of Trends Research, nor do they constitute any investment advice.

The market has risks, decisions should be made independently. This article should not be used as a basis for buying or selling any securities.