Investing.com -- Bank of America reaffirmed its Buy rating on Nvidia (NASDAQ:NVDA) shares, stressing that the chipmaker’s valuation is “still compelling” despite growing geopolitical risks.
The U.S. government’s "AI Diffusion Rules,” introduced in January to control the distribution of AI chips outside a core group of 18 countries, could affect Nvidia’s earnings and lead to volatility in the tech giant’s stock price until the effects become clearer on May 15, referred to as "Liberation Day."
Despite this, BofA analysts maintain a positive outlook, highlighting that the current price-to-earnings (PE) ratio projections for calendar year 2026—ranging from 20x in a bull-case scenario to 26x in a bear-case scenario—are still below Nvidia’s historical average of 36x PE multiple.
This valuation is also considered attractive when compared to large-cap peers, especially considering Nvidia’s superior growth.
“Once the geopolitical concerns are sized and priced, we expect NVDA to recover, much like the relative recovery we have seen in semicap stocks this year once China exposure was reflected in wafer fab equipment spending,” analysts led by Vivek Arya wrote.
“Meanwhile, we believe the stock is providing a particularly attractive opportunity for one of the most unique, high-quality tech franchises leading the largest and fastest growing secular trends,” they added.
BofA estimates that Nvidia has approximately 10% direct exposure to China’s data-center market, with the remainder of sales in less restricted sectors such as gaming, automotive, and workstations. The impact of the AI Diffusion Rules could result in an additional 0%-10% sales headwind.
However, this could be partially offset by increased AI demand from U.S. hyperscalers and other eligible entities.
Even under the most severe restrictions, the bank sees potential earnings per share (EPS) for calendar year 2026 estimated between $4.40 and $5.05, which translates to an attractive implied PE ratio of 22.5x-26x.
The bank also points to other catalysts that may support Nvidia’s stock performance, including an expected recovery in gross margins (GM) in the second half of the year as the company ramps up its new B300 Blackwell Ultra.
Nvidia’s GMs are currently at 71%, below the 75-76% expected for fiscal year 2026/calendar year 2025, a year ago. This margin pressure has also limited upward EPS revisions.
However, following recent management meetings at the GTC conference, there is confidence that GMs will recover towards the mid-70s with the new product launch.