Nvidia is up just 3% YTD while SOX surges 82% — what’s holding it back?

Investing.com -- Bank of America stated in a note on Wednesday that Nvidia's significant underperformance relative to the broader semiconductor index represents a compelling buying opportunity, reiterating its Buy rating and $350 price target on the stock.

Analyst Vivek Arya stated in a note that despite Nvidia's dominance in AI computing, the stock is up just 3% year-to-date compared to the Philadelphia Semiconductor Index's gain of 82%.

He identified four key investor concerns weighing on the shares: gross margin pressure from higher memory costs, custom ASIC competition, crowded investor ownership, and what some view as unproductive use of cash through vendor financing rather than buybacks or dividends.

On margins, Arya said investors "overstate HBM cost pressure while underestimating NVDA's pricing power, scale, and $119 billion of supply-chain commitments."

While HBM content per rack may rise by approximately $0.2-0.3 million from Blackwell to Rubin, Arya noted that rack pricing could increase by $2-3 million, driven by upgrades across compute, networking and software. BofA expects gross margins to remain around the mid-70% range.

On ASIC competition, Arya pointed out that Google's TPU, Amazon's Trainium and Meta's MTIA have all existed for years, "yet NVDA GPU revenue has grown approximately 700 times since 2015." Sales to hyperscalers rose 115% year-on-year, nearly twice cloud capex growth.

BofA said Nvidia's current valuation of 18 times forward earnings, a seven-year low, implies an "unjustified 30-35% headwind" to 2027-2028 EPS estimates relative to growth peers, which Arya said he "strongly disagrees with."

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