Nvidia (NASDAQ: NVDA) stock has experienced a significant move higher. Since late March, it’s jumped from near-$165 to $235 (hitting new all-time highs).
Analysts at Bank ofAmerica Securities, the investment division of Bank of America (BoA) believe the chip stock can go much higher in the medium term. They recently set a price target that’s miles above the current share price.
A sky-high price target
On 13 May, BoA raised its price target for Nvidia from $300 to $320. That new forecast is around 36% above the current share price.
Analyst Vivek Arya sees the chip powerhouse as a ‘top sector pick’. He’s bullish on the name due to the growth potential, the potential for huge cash returns to shareholders (eg higher dividends), and the relatively low valuation (the forward-looking price-to-earnings (P/E) ratio is only about 21).
Now, of course, analyst price targets need to be taken with a grain of salt. Often, they don’t come to fruition.
However, in this case, I do see the potential for it to be hit. Here’s why.
How Nvidia could surge from here
Firstly, Nvidia’s valuation looks too low right now, to my mind. As I said above, the chip stock’s currently trading on a forward-looking P/E ratio of around 21 when we use next financial year’s earnings per share forecast ($11.20).
That’s not much higher than the US market average. However, this is a company that’s growing far faster than the average company – this financial year it’s expected to see revenue growth of a whopping 70%!
Given this low valuation, I see scope for a significant valuation rerating. I wouldn’t be surprised to see the P/E ratio rise towards 30 at some point.
Another reason I see significant potential here is that the stock’s lagged a lot of other chip names this year. While it’s risen quite a bit recently, it’s miles behind the likes of AMD, Marvell, and Texas Instruments on a year-to-date basis.
Ultimately, it has kind of been forgotten about this year. And this makes me think there’s room for a catch-up run.
One other thing worth mentioning is that Nvidia‘s been doing a ton of deals with other technology companies. Companies partnered with include OpenAI, CoreWeave, Nebius, IREN, Amazon, Corning, and Intel.
This activity shouldn’t be ignored. By engaging in massive equity investments, joint ventures, and platform lock-ins, Nvidia’s executing a moat-building strategy on an unprecedented scale, and strengthening its market position.
Is now the time to consider buying?
So is the stock worth considering at current levels? I think so.
I’ve actually been adding to my position recently as it has hit new all-time highs (around $215-$220). I believe we’re now seeing the next leg higher.
Of course, there are risks. If we were to see a hyperscaler suddenly pull back on AI spending, the stock could be rattled.
Earnings disappointments are also a risk in the near term (Q1 earnings are on Wednesday). If the numbers miss estimates the stock could fall.
Taking a three-to-five year view however, I continue to see a lot of potential here.
