Bank of America dismantles semiconductor duos: Nvidia (NVDA.US) 19 times PE becomes a valuation depression, AMD (AMD.US) waits for a turning point

The Zhitong Finance App learned that in a recent research report, the Bank of America Global Research Department conducted an in-depth analysis of the US semiconductor industry, particularly the current status and future prospects of the two industry giants Nvidia (NVDA.US) and AMD (AMD.US).

Nvidia: Performance declined due to multiple factors, but long-term value is still promising

Since the H20 series product ban was officially imposed on China on April 15, 2025, Nvidia's stock price plummeted 14%, while the Philadelphia Semiconductor Index (SOX.US) and the S&P 500 Index (SPX.US) fell 8% and 4%, respectively, during the same period. Currently, there are four major factors that are suppressing Nvidia's stock price: first, sales are limited in the Chinese market (accounting for 13% to 14% of total sales, but currently only 3% to 6% of data center business), but Bank of America believes that the risks associated with the Chinese market have been more fully calculated by the market; second, artificial intelligence proliferation rules that will take effect on May 15 may put 10% of sovereign countries' sales at risk; third, gross margin is expected to return to the middle of 70% in the second quarter of FY2025, but it will have to experience many sales cuts and costs during this period Pressure; fourth, cloud service capital spending was less visible in FY2026.

Bank of America has fully taken these risk factors into account for Nvidia's 2026 and 2027 earnings per share (EPS) forecasts of $3.97 and $5.74, respectively. Despite many challenges, Bank of America has reaffirmed Nvidia's “buy” rating. It believes the current share price fluctuation is a better buying opportunity, although the price target was lowered from $160 to $150 to reflect lower earnings per share expectations based on 26 times the projected price-earnings ratio for FY2026.

From a valuation perspective, Nvidia's current valuation is only 16.6 times based on the price-earnings ratio (P/E). If calculated according to the worst-case scenario (that is, the 10% AI diffusion rule limit), its price-earnings ratio for fiscal year 2026 is only 19 times, far below its historical median of 30 times and the typical cyclical trough of 23 times. This shows that even with more pessimistic expectations, Nvidia's valuation is still attractive.

AMD: Performance has also suffered, and the market is neutral

Based on a similar logic to Nvidia, Bank of America lowered AMD's sales and earnings per share expectations to reflect the impact of the MI308 product embargo on China. AMD is expected to assume $800 million in inventory and reserve expenses in the second quarter of 2025. Assuming its gross margin of -40% in fiscal year 2025, the remaining MI308 series products could reach $1.33 billion in shipments for the rest of 2025, accounting for about 18% of its $7.5 billion to $8 billion data center GPU shipments, and 4% of the company's total sales.

For the 2026 and 2027 fiscal years, Bank of America expects the resistance AMD faces to gradually decrease, assuming that the MI308 series products are the most advanced GPU products that can be sold in China, and will gradually face more local competition. Additionally, starting in the third quarter of 2025, Bank of America slightly raised AMD's gross profit margin by 50 basis points to reflect a reduction in the dilution contribution of the MI308 series products to gross margin, while partially offsetting cost increases due to potential tariffs and supply chain backflows.

Bank of America rated AMD “neutral” and lowered its target price from $110 to $105. This target price corresponds to a price-earnings ratio of 20 times, which matches the price-earnings growth ratio (PEG) of 0.9 times. Based on its forecast earnings of $5.29 per share for fiscal year 2026, it is generally consistent with the historical 1 to 2 times PEG range for high-growth computational semiconductors.

Risk Radar: From Weak Gaming to Manufacturing Dependency

Recently, demand in the game market has continued to weaken, which poses a direct threat to Nvidia's traditional dominant business. According to Bank of America's analysis, consumers' willingness to spend on gaming devices is declining, causing Nvidia's share of revenue in the game market to gradually shrink. According to historical data, the game business contributed about 40% of Nvidia's revenue.

However, the current year-on-year decline in sales in this field is close to 20%, which has dragged down the company's overall performance and revealed Nvidia's potential vulnerability in the process of diversifying its business.

Furthermore, AMD is in an increasingly tough competitive environment and is facing fierce competition from Nvidia, Intel (INTC.US), and various startups. Nvidia continues to launch high-performance products in the GPU (graphics processor) field, consolidating its market leadership position; Intel continues to make efforts in the CPU (central processing unit) market in an attempt to regain lost ground through technological innovation and product iteration.

At the same time, many AI (artificial intelligence) startups are also squeezing AMD in specific segments with flexible market strategies and innovative technology. Bank of America pointed out that AMD faces serious challenges in competing for market share and requires greater efforts in technological innovation and market strategy to break through the encirclement.

At the same time, AMD relies too much on TSMC.US as a single supplier in the manufacturing process, which has become a major risk to its business development. According to industry analysis, TSMC undertakes almost all of AMD's chip manufacturing tasks. If problems occur in TSMC's production process, such as insufficient production capacity, technical bottlenecks, or supply disruptions, AMD's product delivery will be seriously affected.

Bank of America warned that this overly concentrated supply chain layout limits AMD's ability to respond in the face of unexpected situations, increases its operational risks, and may lead to loss of revenue and a decline in market share during supply chain fluctuations.

Finally, competition between China and the US in the field of science and technology continues to intensify, bringing great uncertainty to the semiconductor industry. The US government recently introduced a series of export control policies to restrict exports of key technologies, products and related services to China, covering a wide range of topics, including high-end chip manufacturing equipment and advanced semiconductor materials.

According to reports, the US has added some Chinese companies and institutions to the export control list, causing scientific and technological exchanges and cooperation between China and the US to be blocked. This tense situation may further escalate, spawn more export control measures, increase operating costs and market risks for companies such as Nvidia and AMD, affect their global business layout and long-term development strategies, and cast a shadow over the stable development of the entire semiconductor industry.

Investment Inspiration: Finding Certainty Amidst Uncertainty

As Nvidia and AMD faced sales restrictions in the Chinese market, local semiconductor companies ushered in a window of development. Nvidia expects its sales from the Chinese market to fall by around 4% in fiscal year 2026, while AMD will also be under similar pressure. This shows that local semiconductor companies in China have an opportunity to fill this gap in the market.

The breakthroughs of these local companies in key technology fields such as GPUs (graphics processing units) and CPUs (central processing units) deserve close attention from investors. In particular, in high-end chip manufacturing and AI (artificial intelligence) applications, any breakthrough in technology bottlenecks could bring huge market share growth and return on investment.

The “AI diffusion rules” introduced by the US government have had a profound impact on the global semiconductor industry. Of Nvidia's global customer footprint, 24% of sales come from countries other than China's second- and third-tier countries, including 18% of sales in Singapore. At worst, up to 10% of Nvidia's sales could be limited by AI proliferation rules, causing its EPS (earnings per share) to drop an additional 14% and 11% in the 2026 and 2027 fiscal years, respectively. This situation highlights the importance of chip designers whose layout is in line with the export control framework.

Despite many challenges, Nvidia's valuation remains attractive. During the period when its performance was under pressure, Nvidia's forward price-earnings ratio (P/E) was only 17.4 times, significantly lower than its 5-year median of 30 times, or even 23 times lower than the typical value of a cyclical trough. This means that market fears may have unduly amplified short-term risks, providing investors with an opportunity to buy leading companies at reasonable valuations.

The business models and financial performance of Nvidia and AMD highlight the importance of the layout of the entire industry chain. Nvidia will reduce total sales by 6% in fiscal year 2026 due to the embargo on H20 series products. AMD, on the other hand, anticipates that its gross margin for fiscal year 2025 will be significantly affected, while GPU shipments in its data centers may decrease. This shows that enterprises with the ability to lay out the entire industry chain, from chip design and manufacturing to software platform development, can better cope with market fluctuations and policy changes.