Bank of America: The "AI bubble theory" is truly beneficial for chip stocks, prevents overcrowding, and Nvidia is undervalued.

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Author of this article: Dong Jing

Source: Hard AI

Regarding the recent "AI bubble theory," Bank of America has presented a sharp contrarian view: for chip stocks, it is a "reverse benefit," helping to prevent excessive crowding. NVIDIA is notably undervalued, as its stock price does not reflect its real growth potential.

On November 11, according to Hard AI, Bank of America stated in its latest research report that the prevailing skepticism in the market about AI capital expenditure is not a risk, but rather a "reverse benefit" that ensures lasting returns for this sector. This skepticism helps prevent overcrowding in the sector.

The bank believes that the recent volatility in AI chip stocks has mainly stemmed from macro factors that can be corrected, rather than a deterioration of the fundamentals in the AI spending cycle. In fact, from the robust performance of AI-related industries and NVIDIA’s optimistic outlook, the underlying demand remains strong.

Bank of America stated that doubts about OpenAI’s grand plans are biased and overlook the fact that what truly drives AI investment is the defensive strategy of major tech giants. Notably, as an industry leader, NVIDIA’s current stock price does not reflect its real growth potential and is significantly undervalued.

AI skepticism: a healthy "contrarian positive" signal

Though large AI semiconductor stocks fell an average of 7-8% last week, Bank of America believes this is not a sign of problems in the AI spending cycle. On the contrary, the stock price fluctuations are driven more by macro factors, such as concerns over the U.S. government shutdown, weak employment data, tariff turbulence, and misinterpretations of OpenAI comments. These are all short-term noises that can be corrected, rather than negative fundamental issues.

The real fundamental signals are just the opposite. The report highlights that AI-related supporting sectors have performed strongly; for example, storage and small-to-medium optical module stocks rose 14% last week, indicating that the construction of AI infrastructure is unfolding on a large scale.

In addition, NVIDIA’s recent disclosure at the GTC conference regarding its data center business outlook for fiscal years 2025/26, with scale exceeding $500 billion, further confirms the strong and persistent AI demand.

Therefore, Bank of America believes that the prevalent skeptical sentiment actually helps the market stay rational, reaffirming its "Buy" rating for core beneficiaries of AI infrastructure building, including NVIDIA, Broadcom, AMD in the data center sector, and Lam Research (LRCX), KLA (KLAC), and Applied Materials (AMAT) in the semiconductor equipment sector.

Refuting "AI spending is unsustainable": Defensive investment by tech giants is the key

A common bearish argument in the market is: "Since OpenAI cannot justify its $1.4 trillion long-term commitment, AI stocks must be overvalued." Bank of America dismisses this view as a "lazy and out-of-context argument."

First, OpenAI’s grand plans have not been realized yet, and will be constrained by real conditions such as power supply and data center space. More importantly, the vast majority of current AI spending is not from startups, but is driven by highly profitable, publicly listed hyperscalers.

Bank of America believes that for these tech giants, upgrading to accelerated computing (from traditional CPU computing) is not only "mission-critical," but also a form of "defensive" investment.

The report uses Google as an example: Its capital expenditure, reaching $92 billion, is aimed at "defending" its more than $200 billion search business leadership, preventing users from migrating to new competitors like ChatGPT and Perplexity.

Bank of America notes that meanwhile, private AI companies represented by OpenAI (with over 1 million business customers) and Anthropic (with over 300,000 business customers) are rapidly attracting enterprise users, which in turn puts continuous pressure on listed software and infrastructure-as-a-service (IaaS) providers, forcing them to increase AI investment. Therefore, the core driver for AI spending is solid and strong.

NVIDIA: Not a bubble, but undervalued

The report highlights that NVIDIA’s stock is highly attractive, and its pricing only reflects "very cautious AI deployment."

Based on NVIDIA’s recent disclosure of about $500 billion in data center orders for fiscal years 2025/26, Bank of America estimates the company’s EPS in 2026 could reach about $8.

This means a company with year-over-year growth rates in sales and EPS as high as 50% and 70%, respectively, is trading at a P/E ratio of just 24 times, which is around the market average—making it "not a high valuation."

To further illustrate its potential, the report presents a scenario assumption:

Even if by 2030, AI capital expenditure only reaches 50% of NVIDIA’s forecast range of $3–4 trillion, the company’s EPS could exceed $40 per share by then. This means, based on the current stock price, its forward P/E would be less than 5 times.

Bank of America finds this figure "implausible," and uses it to substantiate its view: Despite media headlines filled with bubble theory, NVIDIA’s stock price is actually undervalued.

This article is from WeChat Public Account "Hard AI". For more cutting-edge AI news, please visit here

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