Nvidia's free cash flow in the coming years could rival Apple's, analyst says
A BofA analyst sees room for Nvidia Corp. shares to tack on another 40% or so to their explosive rally, as a "generational opportunity" further unfolds.
BofA's Vivek Arya upped his price objective on Nvidia shares (NVDA) to $190 from $165 in a Thursday report, with that target implying 39% upside from Thursday's close.
Nvidia's stock, Arya's top pick in the sector, is up fractionally in Friday morning action.
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While Nvidia shares are well loved on Wall Street, Arya thinks investors don't give the company enough credit for its ability to grow free cash flow at a 45% to 50% margin. That's above the roughly 23% to 25% average for the "Magnificent Seven" grouping of large technology companies, he noted.
Arya sees the potential for Nvidia to log more than $200 billion of free cash flow in the next two years, "rivaling that of [Apple] and providing growth optionality."
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He has ever-increasing confidence in Nvidia's positioning, noting a "growing presence of [artificial intelligence] in enterprise," where customers prefer to work with Nvidia. Big players like Microsoft Corp. (MSFT) and ServiceNow Inc. (NOW) have Nvidia "engagements" covering numerous verticals, he added, and Nvidia not only leads in hardware but has ample opportunity in systems as well.
There have been various "AI-related events" in the last few weeks that Arya says reinforce his rosy view of Nvidia's potential, including Taiwan Semiconductor Manufacturing Co.'s (TSM) bullish AI commentary alongside its earnings earlier this week, and rival Advanced Micro Devices Inc.'s (AMD) AI event last week, which saw that company increase its view of the total addressable market for AI accelerators.
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Arya sees opportunity for Nvidia to impress with its networking positioning. Though he's taking a conservative view in his projection for networking to be only 14% of the data-center mix in fiscal 2026 and 2027, his more bullish case assumes Nvidia can get back up to its historical range of 15% to 20%.
Specifically, "a faster ramp of its Spectrum switch (transitions to 100k+ clusters) and potential share gain in Ethernet could increase mix toward 17-18% again," he wrote, while keeping a buy rating on the stock.
Nvidia shares are on track to log their third session in a row of gains, though at current levels they're below the $138.07 closing high established on Monday.
