Each few quarters, the controversy round Nvidia strikes. For some time, it was about whether or not AI demand was actual. Then it was about whether or not margins may maintain. Now, heading into its August 26 earnings report, the query is whether or not the following product cycle can hold an organization already operating at this tempo from slowing down.
Financial institution of America thinks it may. And the be aware behind that view is price studying earlier than the earnings date arrives.
Financial institution of America Nvidia earnings preview and $350 worth goal
In a be aware shared with TheStreet on August 7, Financial institution of America analyst Vivek Arya known as Nvidia (NVDA) his prime sector choose forward of the corporate’s fiscal Q2 FY2027 outcomes. He expects income of $94 billion to $95 billion, roughly $3 billion to $4 billion above Nvidia’s personal $91 billion steering. That steering excludes any China information middle compute income, that means precise outcomes may are available increased if modest shipments to that market resume. Third-quarter steering, he says, ought to are available at $107 billion to $108 billion, properly above the roughly $104 billion Wall Road is presently modeling.
For context, Nvidia reported Q1 FY2027 income of $81.6 billion in Could, up 85% yr over yr, with information middle income of $75.2 billion. The Q2 steering of $91 billion implied continued sequential progress. BofA’s $94 billion to $95 billion estimate would lengthen that momentum additional.
However Arya is not actually writing concerning the subsequent quarter. “The graduation of Vera Rubin next-generation chip deliveries marks the start of an prolonged improve cycle spanning a number of quarters,” he wrote. That is the argument. Not only a beat. A brand new cycle.
Arya has a $350 worth goal on Nvidia, representing roughly 56% upside from $223.96 on the time of the be aware. He factors out that the inventory is buying and selling at about 16 occasions ahead earnings, its lowest valuation in roughly a decade, even because the earnings trajectory continues to rise, as TheStreet reported.
Why Nvidia Vera Rubin may set off a multi-quarter improve cycle
Nvidia confirmed at GTC Taipei in June that Vera Rubin has entered full manufacturing. The platform pairs Rubin GPUs with the brand new Vera CPU and is anticipated to be out there from cloud companions within the second half of 2026. AWS, Google Cloud, Microsoft and Oracle are already getting ready deployments, with OpenAI, Anthropic and SpaceX among the many first clients. Nvidia is focusing on sufficient capability to require 2 gigawatts of energy for the buildout, as TheStreet reported.
GPU spot rental costs are close to all-time highs, Arya notes within the be aware. The B200 is operating at about $5.66 per hour, the H100 at $2.80 per hour, the A100 at $1.64. That information level issues as a result of it addresses one of many persistent doubts concerning the AI commerce. If clients can nonetheless lease compute at these costs and become profitable from it, they’ve each cause to maintain shopping for the following era of {hardware}. The priority about return on funding fades when the rental market is that this sturdy.
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The Vera CPU is the a part of Rubin that Financial institution of America finds most fascinating past the GPU story. An earlier be aware from the financial institution known as it “the only best new addition for the reason that GPU.” Arya’s present be aware tasks Vera CPU gross sales within the second half of fiscal 2027 at roughly $20 billion, with an annual run charge of $50 billion or extra by fiscal 2028. That trajectory, if it holds, would make Nvidia the biggest server CPU vendor.
Nvidia gross margin and reminiscence price inflation outlook for 2027
Reminiscence price inflation has develop into one of many louder issues about Nvidia’s margins. DRAM now makes up 40% to 50% of whole manufacturing prices, up from 15% to twenty% traditionally. The concern is that as Nvidia strikes to extra memory-intensive architectures, these rising prices eat into its famously excessive gross margins quicker than the corporate can worth round them.
Arya’s be aware pushes again on that straight. For Vera Rubin compute racks particularly, the reminiscence price improve quantities to about 60 foundation factors of gross margin strain versus Blackwell Extremely. Gross margins are anticipated to settle at 73% to 74% over time, down modestly from about 75% now. That isn’t the type of structural margin erosion that may break the funding case.
The larger quantity is on the pod degree. Full AI pods, which bundle in additional reminiscence and storage, may see as much as 500 foundation factors of margin impression. However Arya expects that blend to remain small initially. Nvidia’s long-term provide agreements with SK Hynix and its pricing energy, given GPU rental charges close to all-time highs, give the corporate room to go via prices somewhat than soak up them.
Nvidia confirmed at GTC Taipei in June that Vera Rubin has entered full productionOta/Getty Pictures
Nvidia OpenAI round financing and free money circulate defined
Nvidia has dedicated roughly $70 billion in direct fairness stakes to ecosystem companions. That features $30 billion to OpenAI, as much as $10 billion to Anthropic, and $5 billion to Ilya Sutskever’s Secure Superintelligence. Some buyers have questioned whether or not these preparations are round, basically Nvidia financing the purchasers who purchase Nvidia chips.
Arya’s be aware addresses this straight. In opposition to the $70 billion in direct investments, Nvidia is anticipated to generate roughly $470 billion in free money circulate throughout 2026 and 2027. The $70 billion represents about 15% of that. There may be room to maintain returning roughly 50% of free money circulate to shareholders whereas making these investments, in response to Benzinga.
The $250 billion backstop tied to an OpenAI and SB Vitality campus in Ohio is a special type of dedication. It isn’t upfront money. It’s a contingent assure that solely triggers if OpenAI defaults on the lease, with publicity back-loaded to 2028 and past. When Nvidia is anticipated to be producing $300 billion to $500 billion per yr in free money circulate by then, the chance profile appears totally different than the headline quantity suggests.
NVDA inventory valuation at decade low and the BofA bull case
At 16 occasions ahead earnings, Nvidia is at its most cost-effective in a couple of decade. The financial institution’s EPS projections put Nvidia at greater than $13 per share by 2027 and greater than $25 by 2030, assuming the AI information middle market develops alongside Arya’s mannequin. That mannequin assumes Nvidia holds greater than 70% share of a market the financial institution sees rising previous $1.7 trillion in AI information middle techniques.
The dangers are actual. AMD is gaining floor in AI accelerators. The most important cloud corporations are constructing extra of their very own customized chips. China export restrictions stay an overhang. Hyperscaler capital spending may get extra uneven if the returns on AI infrastructure disappoint. None of these go away.
However the setup Financial institution of America is describing is an organization with this degree of earnings energy sitting at a valuation that does not mirror it. Whether or not August 26 confirms that or not virtually misses the purpose. The larger query is whether or not Rubin delivers what Arya’s be aware says it is going to. If it does, one earnings report is the beginning of one thing, not the factor itself.
