Nvidia's Decline Was Misunderstood!

Bank of America stated that Nvidia's recent stock pullback was due to investors "misreading the numbers." Analysts emphasized the need to focus on the company’s strong demand signals and exceptional free cash flow performance rather than short-term fluctuations.

Bank of America analyst Vivek Arya expressed in a note published on Friday that the stock correction was based on a "misinterpretation of the company’s quarterly financials," and noted that strong demand signals, visibility, and most importantly, the potential to generate free cash flow were overlooked.

Arya mentioned that free cash flow "increased by 60% quarter-over-quarter, surpassing $22 billion," and described this metric as a central element in understanding Nvidia's true fundamentals.

Bank of America reiterated its "Buy" recommendation for Nvidia with a price target of $275. While most market concerns centered on working capital trends, the bank noted that the worries regarding accounts receivable and inventory increases were unfounded.

Arya emphasized that "it's not the absolute amount of receivables, but their ratio to sales," and stated that days sales outstanding decreased from 54 days to 53 days compared to the previous quarter. Regarding inventories, he explained that Nvidia was increasing shipments of more complex systems, such as the Blackwell GB200 and GB300 NVL72 racks.

Furthermore, Bank of America addressed the competitive pressure from Google’s dedicated TPU chips, stating, "The success of Gemini could complicate the prominence of OpenAI models; however, Nvidia holds a broader position in the ecosystem." The analysis report noted that Nvidia’s graphics processing units (GPUs) are present in every cloud environment and are integrated with nearly every other major language model (LLM).

The bank highlighted that Nvidia continues to be attractive with a price/earnings ratio of 24x/18x for CY26/27E against sales/company earnings growth of over 40%, advising investors to "ignore quarterly noise."