Nvidia Gains as Bank of America Names It Top Sector Pick on 'GenAI Dominance'

Key Takeaways

• Nvidia shares gained as Bank of America named it a "top sector pick," citing its strength in generative AI (genAI).
• Bank of America analysts said Nvidia's "genAI dominance" could help it generate $100 billion of incremental free cash flow (FCF) over the next two years.
• With robust FCF, Nvidia could consider partnering with or acquiring software companies dealing with genAI apps, which could boost the chipmaker's position, Bank of America said.

Nvidia (NVDA) shares gained over 2% Friday after Bank of America analysts named the chipmaker a "top sector pick" for its strength in generative AI (genAI).

The analysts wrote Nvidia's "genAI dominance" could help the company generate $100 billion of incremental free cash flow (FCF) over the next two years, adding that they estimate $30 billion to $35 billion could be deployed for buybacks, "leaving a meaningful [$65 billion to $70 billion] in ammunition for new organic & inorganic growth initiatives."

Bank of America noted that hardware-dependent businesses can face challenges around recurring revenue profiles, "unlike other large-cap software/internet peers," but that Nvidia stands out from competitors as "solid FCF generation creates optionality in addressing these concerns."

The firm added that Nvidia may consider partnerships with or mergers and acquisitions (M&A) of "software companies that are helping traditional enterprise customers deploy, monitor and analyze genAI apps."

Jefferies analysts have also previously designated Nvidia a “franchise pick," while Wedbush said the chipmaker could "end up a winner (if not the winner)" of the AI era.

Nvidia shares closed 2.3% higher at $490.97 per share Friday and have more than tripled in value over the past year.

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