Bank of America says the argument to purchase Nvidia has become even stronger. Vivek Arya, an analyst, named Nvidia as a top choice. He stated in a Tuesday note, that Nvidia’s stock prices are in recession even though they have better free cash flow margins. Arya said that although macro factors could increase volatility in stocks, 36% of SOX’s peak-trough PE multiple contraction (vs. 27% historical downturn) already indicates a medium-sized recession. “Meanwhile chip stocks are generating ~23% FCF margins (2x+ more profitable than S & P 500 stocks) and trading at compelling 22x CY22 EV/FCF, which is below R1K value stock multiples.” Nvidia is assigned $270 by Bank of America. This price target represents a nearly 45% increase in price from Tuesday’s close price. Nvidia shares have fallen nearly 37% over the past year. Bank of America thinks that Nvidia’s services are the best in their industry, which includes cloud computing, artificial intelligence and industrial electric vehicles. In the past, semis were driven by a single market, such as smartphones or PCs. Arya stated that there is now a broad range of end-markets being served by the same set of chip vendors. They deliver proprietary products and generate solid FCF margins. A stronger pricing structure and flexible hybrid manufacturing/the use of outsourced foundries may also reduce the gross margin/FCF volatility for semis in the inevitable downturn. Arya suggested that Chip stocks might also benefit from China lifting some Covid regulations, which may “re-energize investor interest” in the sector. —CNBC’s Michael Bloom contributed to this report.
