Nvidia at compelling valuation with margin recovery ahead, analysts believe

Nvidia Corp (NASDAQ:NVDA, ETR:NVD) has earned a repeat Buy rating from analysts at Bank of America who cited the chipmaker’s compelling valuation and expressed confidence in the company’s long-term growth trajectory.

Shares of Nvidia traded hands at their time of writing at about $108, well below the analysts’ price target of $200.

Margin recovery eyed

In a note ahead of Nvidia’s annual GTG Conference, they wrote that a key focus for investors is Nvidia's gross margin recovery.

“We focus on gross margin percentage as a key indicator of Nvidia's pricing power, cost structure and supply chain execution,” they wrote.

Nvidia’s shares peaked last year when its gross margins did at 79%, but analysts termed this “an abnormally high number.”

Analysts expect Nvidia to confirm that gross margins will improve in the second half of the year, potentially reaching the mid-70% range. The recent decline to 71% reflects the cost and complexity of transitioning to the Blackwell architecture, along with higher input costs and overhead, they believe. 

Regarding potential risks related to China’s trade restrictions, analysts estimate the region's impact at approximately $10 billion in sales, translating to a potential $0.30 to $0.40 earnings per share headwind without offsets. However, demand outside of China could partially offset this decline.

Continued market dominance

Nvidia's ability to maintain its market dominance amid rising competition from custom ASIC chips is another critical factor, the analysts highlighted.

The company is expected to sustain its 80% to 85% market share thanks to its strong product pipeline, platform-level innovation, and established relationships with enterprise and sovereign clients.

Innovations such as improved networking capabilities, including potential collaborations with Lumentum for co-packaged optics (CPO), are seen as key drivers of future performance.

While CPO's broader adoption may take time, analysts anticipate Nvidia will outline its progress at the upcoming GTC conference.

Analysts expect Nvidia to also provide updates on its product pipeline, including Blackwell Ultra (B300) for reasoning model inference and Rubin, a future platform expected to launch in 2026. 

Further, Nivida is expected to highlight long-term opportunities in autonomous vehicles, physical AI/robotics, and quantum computing.

“While market volatility and China headlines could pressure the stock near-term, we still believe fundamentals will eventually prevail with the stock below its historical trough 25x its price-to-earnings (P/E) ratio,” the analysts concluded.

Shares of Nvidia traded up 6.5% at about $115 on Wednesday afternoon.