Analysts Recommend Buying Nvidia Shares

Wall Street analysts are encouraging investors to buy the recent pullback in Nvidia shares.

The AI darling’s quarterly forecast on Wednesday fell short of lofty investor expectations, which have propelled a major surge in its stock as they bet on the future of generative AI.

Nvidia’s shares fell about 3% in Thursday’s premarket trading, negatively impacting other chip stocks. Despite considerable growth and profit, the results were viewed as mixed.

For the quarter ending July 28, NVIDIA Corporation (NASDAQ: NVDA) reported adjusted earnings of $0.68 per share on revenue of $30.04 billion, surpassing analyst expectations of $0.64 per share and $28.68 billion in revenue.

The strong results were bolstered by a 154% year-over-year increase in data center revenue, which reached $26.27 billion.

Looking ahead to Q3, Nvidia anticipates revenue of $32.5 billion, give or take 2%, ahead of Wall Street’s estimate of $31.9 billion, and expects to generate “several billions in Blackwell revenue” in Q4. Nvidia has guided non-GAAP gross margins to 75.0%, aligning with consensus expectations. For the full year, gross margins are expected to remain in the mid-70% range, with Q4 margins projected to be slightly lower than the approximately 75% achieved in FQ3.

Analyst Perspectives on Nvidia’s Earnings

Although Nvidia’s revenue and gross margin forecast didn’t exceed Wall Street targets as in previous quarters, analysts maintain a positive outlook on the stock.

Analysts at UBS firmly believe investors should “buy the pullback,” noting that key NVDA indicators are still bullish. UBS specifically highlighted the increase in Nvidia’s purchase commitments and supply obligations, which they consider “the most important metric we watch and a harbinger of future growth.”

In their view, the most bullish note from the report was the ~$10 billion increase in total supply ($6.7 billion BS inventory + $27.8 billion purchase commitments), which was up approximately 40% Q/Q after previous growth had slowed.

The bank’s analysts also expressed no concern regarding gross margin and expect data center margins to remain relatively stable throughout the Blackwell cycle, similar to margins observed during the Hopper cycle.

Likewise, analysts at Bank of America reaffirmed a Buy rating on Nvidia stock post-report and raised the target price from $150 to $165. BofA warned that the stock might experience short-term volatility given some of Nvidia’s projections missed high expectations and rising Blackwell ramp costs could impact Q3 margins.

However, analysts emphasized their continued belief in NVDA’s unique growth opportunities, execution, and dominant 80%+ market share, asserting that generative AI deployments are still in the early stages of a 3-4 year investment cycle.

They noted, “AI deployment remains a mission-critical imperative for global cloud/enterprise customers, with NVDA providing the best turnkey model.”

BofA also underscored Nvidia’s appealing valuation, with a price-to-earnings (P/E) ratio of 30-35 times estimated CY25 earnings, or a PEG ratio of less than 1 compared to anticipated EPS growth of over 40%, marking it as a standout in not just semiconductors but also large-cap tech/growth sectors.