BofA on Nvidia stock: “Catalytic growth at a catalytic valuation
Bank of America (NYSE:BAC) reiterated its Buy rating on NVIDIA Corporation (NASDAQ:NVDA) stock this week, citing “exciting growth at a compelling valuation.”
Despite some near-term headwinds, BofA analysts see these challenges as an attractive buying opportunity.
Nvidia is currently dealing with delays to its Blackwell product line, potential regulatory scrutiny from a DOJ antitrust investigation and broader market issues such as weak seasonality and interest rate concerns. However, BofA believes these factors could strengthen the stock’s buyability, especially given its valuation.
The stock trades at around 27x its expected CY25 price-to-earnings (P/E) ratio, placing it in the lower quartile of its five-year range, which BofA views as a favorable entry point.
Even with Blackwell’s delays, BofA points to Nvidia’s consistent growth, driven by demand for its previous-generation Hopper chips. The bank also notes that Nvidia’s AI products “have consistently outperformed industry benchmarks,” signaling that the company’s AI dominance is unlikely to fade.
BofA is particularly bullish on Nvidia’s role in the next generation of large language models (LLMs), including OpenAI’s GPT-5 and Meta’s Llama 4, which are expected to bring major advances in AI capabilities.
“AI capital spending not only leads to new business opportunities, but is also critical to protecting existing moats and large pools of profit in search, social and enterprise workloads (chat, copilot),” the BofA team adds.
The house sees Nvidia as a top pick in the technology sector, with supply chain updates in the coming weeks likely to act as a key rally catalyst for the stock.
Microsoft, Adobe are added to WF’s ‘Signature Pick’ portfolio
Wells Fargo (NYSE:WFC) added shares of Microsoft Corporation (NASDAQ:MSFT) and Adobe Systems Incorporated (NASDAQ:ADBE) to its “Signature Picks” portfolio.
Analysts revealed in a note on Wednesday that they opened a 4% position in Microsoft, citing the company’s “cloud positioning and [artificial intelligence] leadership.”
They highlighted that artificial intelligence was a key factor in the second-half boost in Microsoft’s Azure cloud division.
Analysts also initiated a 2% position in Adobe, noting that “design is one of the most tangible use cases” of creative AI.
They added that concerns about competition in the space are “overblown” and stressed that “Adobe’s moat remains strong.”
AI stocks are not in a bubble but the risks of concentration are elevated
In a note on Thursday, Goldman Sachs (NYSE:GS) strategists dismissed concerns that the artificial intelligence industry is in a bubble, although they warned that consolidation risks remain high due to the dominance of a few large-cap companies.
Since 2010, the technology sector has accounted for 32% of global equity performance, thanks to solid fundamentals and the introduction of transformative technologies such as Artificial Intelligence. Despite the surge in valuations, Goldman believes AI is “likely to continue to dominate returns” and not signal a bubble.
The report points to the “Magnificent Seven” — major U.S. technology companies such as Apple (NASDAQ:AAPL), Microsoft and Nvidia — that now hold a significant share of the market.
These companies, backed by strong earnings and significant investments in IT, show no signs of the irrational exuberance seen in previous bubbles such as the dot-com boom of the late 1990s. Their profitability and cash flows justify the their valuations, which remain well below tech bubble levels.
However, Goldman warns that market concentration is at historic levels. The top 10 companies now account for more than a third of the S&P 500, while the five largest companies account for 27% of the index’s total value.
Strategists are questioning whether this rise in AI-powered tech stocks could be approaching bubble territory, or whether the concentration of power in a few companies is creating a “dangerous trap” for investors.
On the other hand, this concentration could provide a “diversification opportunity for potential beneficiaries of these technologies through cheaper companies outside the dominant few,” the note adds.
Mizuho adds Micron, Oracle shares to top picks list
Analysts at Mizuho added Micron Technology Inc (NASDAQ:MU) and Oracle Corporation (NYSE:ORCL) to their Top Picks List, the investment bank’s choice for high-credibility and catalyst ideas.
For Micron, a key player in the AI boom, analysts expect the company to benefit from better pricing in DRAM and NAND, with AI-related spin-offs boosting HBM’s market share. Micron’s partnership with NVIDIA, in particular, is expected to support these gains.
Mizuho predicts that HBM3E will capture around 70% of the HBM market by 2025, with Micron continuing to be an important supplier for NVIDIA’s AI GPU rise. This could lead to an increase in HBM share in the second half of 2024 and through 2025. Analysts also predict that AI devices will require twice as much DRAM and NAND content compared to traditional devices by 2025.
Although a performance issue with Micron’s HBM affected margin expansion in the November quarter, Mizuho analysts believe margins could improve through 2025 as HBM accounts for a larger share of revenue and utilization rates for DRAM and NAND are increasing.
“We believe corrections in most consumer end markets are nearly complete, but adverse demand conditions remain as renewal cycles for mobile and PC appear prolonged compared to previous years,” they noted.
As for Oracle, Mizuho believes the company’s cloud infrastructure (OCI) is undervalued.
Its competitive pricing, about 33% lower than AWS, positions Oracle to capture more enterprise customers as they move from on-prem to cloud solutions. Analysts expect Oracle’s strong on-prem customer base to be a major driver of revenue growth.
Additionally, they are confident that Oracle can expand its operating margins to 45% by FY26 through “cloud margin expansion, sales and R&D efficiencies and leverage from scale.”
JPMorgan (NYSE:JPM) downgrades SMCI stock on regulatory uncertainty, competitive pressures
Analysts at JPMorgan downgraded Super Micro Computer ( NASDAQ:SMCI ) from Overweight to Neutral on Friday, with the company’s stock down more than 3% after the market opened.
Analysts stressed that while they remain confident in Super Micro’s ability to regain regulatory compliance, near-term uncertainty is a key factor in the rating change.
They explained that “a short-term view, where there is no clear rationale for new investors to enter SMCI shares, while there is uncertainty around regaining critical regulatory compliance on top of unchanged business fundamentals.”
JPMorgan also raised concerns about the company’s potential response to competitive pressures in the AI server market. Analysts noted that aggressive pricing to retain customers could affect margins, potentially prompting a competitive response from peers.
The firm believes that while meeting regulatory requirements could act as a positive catalyst, investors are likely to wait for clearer signs that customer demand and margin prospects remain stable before fully committing.
In light of these uncertainties, JPMorgan advises new investors not to take positions until the company regains regulatory compliance.
The house also cut its December 2025 price target to $500 from $950, reflecting a lower earnings multiple more in line with traditional IT hardware companies, which typically experience slower growth.
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Written by D Fernando
