Nvidia Remains a Top Choice Amid Market Challenges

BofA Securities analyst Vivek Arya has reaffirmed a Buy rating on Nvidia Corp NVDA, setting a price target of $190.

Nvidia stands out as Arya’s top selection as the company prepares for its fourth-quarter earnings call, set for February 26. He acknowledges that the ongoing transition to the Blackwell product line and restrictions from China could temper expectations, but anticipates a slight revenue beat, consistent sales guidance, and reduced gross margins in the first quarter.

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Interestingly, this upcoming call could represent a low point in investor sentiment. Arya believes Nvidia will provide reassurance regarding Blackwell execution and express confidence about growth in fiscal 2026 and calendar 2025, projecting a robust 60%+ increase in data center sales. Additionally, he expects to generate excitement at the upcoming GTC Conference on March 17, focusing on the promising pipeline including the GB300 and Rubin products, alongside developments in robotics.

Currently, Nvidia's stock trades at an attractive valuation, approximately 26 times expected earnings for calendar 2025, which positions it at the lower end of the typical range spanning from 25 to 59 times PE, with a median of 39 times.

Despite media hype around DeepSeek's purported “revolutionary” optimizations, spending trends among Nvidia’s major clients, such as Microsoft Corp MSFT and Meta Platforms Inc META, appear to remain stable. Nvidia continues to be the preferred platform for computing needs, particularly in areas concentrating on frontier-model training related to artificial general intelligence (AGI), derivative model training like DeepSeek, and AI inference. This subset demands an increase of 3-5 times in computing resources as models become more accurate and sophisticated, urging upgrades from traditional to accelerated infrastructures.

Arya noted that while the specific roles of the four key drivers may shift, the overall market is expected to expand significantly, targeting a total addressable market (TAM) of around $500 billion by 2028 and 2029, reflecting a 5-fold increase from 2024 and 2025 figures.

From 2018 to 2024, Nvidia's processing performance (measured in FLOPS) surged 1000 times, and its data center sales grew by 300 times, showcasing that advancements in one area did not detract from progress in another. Optimizations in both hardware and software are crucial for facilitating this computing evolution.

Arya also anticipates the U.S. government's stricter enforcement of AI diffusion rules will fuel increased demand from Western markets, particularly from U.S. cloud services, enterprises, and projects like OpenAI Stargate, compensating for any disruptions caused by developments in China.

He highlights the promising outlook for both GPU (Nvidia) and ASIC vendors like Broadcom Inc AVGO and Marvell Technology, Inc MRVL, driven by heightened demand for AI computing and networking. However, he does not see evidence indicating a loss of Nvidia's significant 80% market share to ASICs, which are unlikely to surpass a 10%-15% share of the larger accelerator market.

Inference processes continue to increase in computational intensity, while Broadcom reported during its latest call the extensive use of large clusters for training purposes—a domain where Nvidia continues to excel.

Thanks to Nvidia’s strong synergy between hardware and software and robust enterprise capabilities, Arya believes it will be challenging for ASIC vendors to disrupt its market position.

For its fourth quarter, Arya projects Nvidia will report revenues of $38.7 billion and adjusted earnings per share (EPS) of $0.86.

Price Movements: Nvidia’s stock has seen a 2.45% increase, bringing it to $119.52 recently.

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Nvidia, Earnings, Investment