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Don't sweat Nvidia's recent sell-off as the stock still has 26% upside, Bank of America says

Yuheng Zhan   

Don't sweat Nvidia's recent sell-off as the stock still has 26% upside, Bank of America says
  • Nvidia stock has slid since late March, correcting by over 10% from all-time highs.
  • BofA analysts say there's nothing to worry about, and the company will still dominate in the AI chip space.

Nvidia stock has tumbled recently, with the share price correcting by more than 10% from the latest all-time high, but Bank of America is telling investors not to worry about the recent slide as the chip titan is still in prime position to dominate.

BofA analysts led by Vivek Arya said in a note Wednesday that despite the 11% plunge since late March, they remain bullish on Nvidia and predict the company will hold onto its top spot as the industry's leading producer of the chips that power the booming artificial intelligence space.

The analysts note that the latest rout is the ninth time the stock has fallen more than 10% since ChatGPT debuted in November of 2022.

The bank maintained its price target of $1,100 per share, representing upside of 26% from where the stock was trading during Wednesday's session. Shares changed hands at $867.62 around 12:45 p.m. Wednesday.

"While there is always the potential for near-term summer consolidation in NVDA stock (such as we saw from Aug-Dec last year), we believe the fundamentals are solidly on track and periods of consolidation (trading sideways) tend to set the stock up for strong moves later," analysts wrote in the note.

They add that Nvidia's recent stock decline can be attributed to numerous factors such as inflation picking back up, rising competition from other chip makers, market volatility, AI stock fatigue, a rotation toward cyclical sectors, and potential pruning of some positions ahead of earnings season. Yet, these factors haven't shifted the narrative for the firm.

Nvidia's latest Blackwell chip offers a fivefold AI performance boost, which aims to cut AI inference costs and energy use by up to 25 times. This, combined with Nvidia's strong enterprise foothold, makes the BofA analysts more confident in the company's ability to maintain and gain market share in the chip space.

While Nvidia faces competition from Google and Intel, the bank believes their processors pose limited threat to Nvidia's dominance.

Google just announced its ARM-based server CPU, Axion, while Nvidia has its own called Grace. However, since Nvidia doesn't sell their CPUs to Google, the bank said Google's new launch has no impact on Nvidia.

Meanwhile, Intel also unveiled its Gaudi 3 accelerator this week, which it says will boast 50% better inference performance compared to Nvidia's two-year-old H100 chip. However, Bank of America expects Gaudi 3 to capture less than 1% of the AI accelerator market share.

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