Bank of America: "Nvidia is still not expensive at a valuation of two trillion dollars"

The manufacturer of graphics processors used in artificial intelligence applications Nvidia reached a valuation of 2.2 trillion dollars, but even so its shares are not expensive, according to Bank of America writes Business Insider. The bank maintained its "Buy" recommendation and raised its price target from $925 to $1,100 on the stock, 21% above the company's mid-week closing price.

"Despite this year's outperformance, Nvidia's valuation and weight in investors' portfolios are attractive relative to semiconductor/IT competitors," said Bank of America analyst Vivek Arya.

Since the beginning of the year, Nvidia shares are up about 80%, and in the last twelve months the rise is almost 300%, as demand for its graphics cards used in artificial intelligence applications is growing. Even so, amid the stunning success of its core business, Nvidia shares are trading at lower valuations than when ChatGPT launched in 2022.

"Nvidia is trading today at a trailing twelve-month P/E multiple (not taking into account profitability estimates) of 37x compared to 44x when ChatGPT launched in November 2022," Arya said, adding that shares is in the historical range of 26x to 69x.

Additionally, even though most investors own Nvidia stock, their portfolio holdings are underweight compared to the company's weight in the S&P 500 index. "The valuation, the level of holdings, suggests there is still room for growth," Arya said. "Our latest analysis suggests that while Nvidia holdings are large (67% of funds in our survey), the relative weighting (Nvidia holdings concentration vs. S&P concentration) is below that of comparable big names in information technology (1.01x vs. 1.13x to peers), despite having nine times faster growth potential," Arya said.

A further increase in Nvidia shares may be triggered by the "AI Woodstock" event on March 18, when the company hosts the GPU Tech conference and is set to announce the successor to its extremely popular H100 chip, according to the Bank of America analyst, writes Business Insider.