BofA analyst Vivek Arya says Nvidia's stock could climb more than 55% from its current price, arguing the chipmaker's financing deals with OpenAI carry manageable risk. Arya points to Nvidia's cheap valuation relative to its free cash flow and says bigger buybacks could reassure investors wary of the company's expanding financial commitments.
Nvidia has drawn criticism for striking financial deals with its customers and suppliers, but BofA analyst Vivek Arya argues the payoff for investors willing to look past those risks is substantial. Arya wrote Monday that he sees Nvidia's stock rising more than 55% from its current price of $225 a share, citing the company's cash-flow profile and room for bigger shareholder payouts.
OpenAI lease guarantee capped at $105 billion
According to a U.S. Securities and Exchange Commission filing made Monday, Nvidia entered a partnership with SB Energy to provide up to $105 billion in financing for a data center in Pike County, Ohio, where OpenAI will be the tenant. Arya isn't worried about the exposure because Nvidia's guarantee only covers the residual value shortfall between a lease's guaranteed minimum value and what a new lease or sale would recover, and that payment obligation is capped at $105 billion. He also notes the agreement is smaller than earlier reports had suggested, which pointed to Nvidia potentially providing $250 billion in guarantees for a 10-gigawatt data center.
Arya said the timing works in Nvidia's favor because the company is securing land, power and physical infrastructure. According to BofA: "Today's conditions make this worthwhile". The new deal also lets Nvidia secure infrastructure to host its own chips before a competitor does, and expand beyond its partnerships with Big Tech hyperscalers that are building their own custom chips.
Buybacks seen as the strongest counterargument
Arya argues that a bigger commitment to share buybacks would be the most effective way for Nvidia to offset concerns about its ecosystem investments. The company currently puts about half of its free cash flow toward buybacks, while some peers devote between 75% and 100% of theirs. He warned, however, that Nvidia's investments in frontier AI labs and neoclouds risk lower earnings quality and a depressed trading multiple even as they help accelerate the AI cycle.
Still, Arya flagged risks if AI demand slows, which could pressure Nvidia's growth rate and balance sheet. He noted that a resale to a new tenant would resolve an OpenAI default on the Ohio site, but it remains unclear how a broader AI slowdown would play out with a replacement tenant.
Nvidia is expected to share more detail on its off-balance-sheet commitments when it reports earnings on Aug. 26.
Source: MarketWatch
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