Nvidia’s Valuation Gap Narrows as Hyperscaler Earnings Put $78 Billion Target to the Test

Bank of America reaffirms buy rating on Nvidia, citing a valuation discount as AI demand surges ahead of Q1 earnings and hyperscaler capex reports.

Nvidia’s stock is trading just shy of its 52-week high in Frankfurt at around €179, having surged roughly 23% over the past month. Yet despite the relentless rally, analysts at Bank of America argue the shares still look cheap relative to peers. The bank has reaffirmed its buy rating and lifted its price target to $300, citing a valuation discount that seems at odds with the chipmaker’s blistering growth trajectory.

The disconnect is stark. Nvidia currently trades at 24 times expected 2027 earnings, while the rest of the Magnificent Seven command an average price-to-earnings multiple above 41. Its price-to-earnings-growth ratio sits at just 0.63, a level that suggests the market has yet to fully price in the sustained demand for AI infrastructure. By comparison, household names like Apple and Costco carry far richer valuations.

A $78 Billion Quarter on the Horizon

All eyes are now on May 20, when Nvidia is due to report fiscal first-quarter results. Management has guided for revenue of roughly $78 billion, with the data center segment—the company’s main growth engine—expected to contribute $71 billion. That would mark another quarter of triple-digit growth, though the comparison is helped by a one-off drag from last year’s US export restrictions on China. In the prior quarter, revenue had already climbed 73%.

The upcoming earnings release comes at a pivotal moment. This week, four of Nvidia’s biggest customers—Microsoft, Amazon, Alphabet, and Meta—are opening their books. Investors will be scrutinizing their capital expenditure plans for any signs of a pullback in AI spending. If the hyperscalers confirm they are ramping up data center investments, Nvidia’s position as the dominant supplier of AI chips will be reinforced. Any hint of budget cuts, however, could derail the current uptrend.

The Hyperscaler Squeeze on Startups

A clear bifurcation has emerged in the market for Nvidia’s chips. Tech giants like Microsoft, Google, and Meta are securing the bulk of supply as they race to build out their own AI infrastructure. Smaller AI startups, by contrast, are often left waiting, facing long lead times and steep prices. While this concentration creates a risk for smaller developers, it provides Nvidia with a steady and predictable revenue stream from its most creditworthy customers.

Intel’s surprise earnings beat last quarter added further fuel to the chip sector. A strong buildout of data centers requires processors from both Intel and Nvidia, and the positive read-across has lifted the entire industry.

Billions Flowing Back to Shareholders

Nvidia’s capital allocation strategy is also drawing attention. The company has laid out a cumulative revenue target of $1 trillion by the end of 2027, driven by investments in its next-generation chip platforms, Blackwell and Vera Rubin. In the last fiscal year, it returned $41 billion to shareholders through dividends and buybacks, and it still has authorization for more than $58 billion in additional repurchases. A more aggressive payout policy could eventually attract dividend-focused institutional investors, adding another layer of demand for the stock.

A Long Growth Cycle Ahead

Looking further out, Nvidia’s management expects global spending on data center infrastructure to exceed $3 trillion annually by 2030. The buildout of these facilities takes years, meaning the associated chip orders will be placed well after the initial construction. This extended cycle provides Nvidia with a multi-year growth runway that many on Wall Street believe is not yet fully reflected in the share price.

Of the 54 analysts covering the stock, 52 rate it a buy. The highest price target stands at $380. The coming weeks will provide the real test: whether the hyperscalers’ spending plans can validate those lofty expectations.