Nvidia reported earnings on Aug. 26. Wall Street expected it to beat. Bank of America was not particularly interested in that part of the story.
The firm’s note, published ahead of the report, was really about one thing: whether the market had correctly priced the scale of what Nvidia has been doing with its balance sheet.
The answer, according to Bank of America, was no. The results Nvidia delivered made that argument harder to dismiss.
Bank of America’s Buy rating and $350 Nvidia price target
In a note shared with TheStreet on Aug. 25, analyst Vivek Arya reiterated a Buy rating and a $350 price target on Nvidia, implying roughly 64% upside from where the stock was trading that day.
The note’s title says everything about where the firm directed investor attention: “Balance sheet disclosures could speak louder than EPS beat.”
Nvidia delivered revenue of $96.2 billion for the second fiscal quarter, up 106% year over year and well above consensus expectations of roughly $92 billion, according to Nvidia’s official earnings release. Data center revenue came in at $89 billion, up 117% year over year. Gross margin held at 75%.
“AI has reached its inflection point. It’s doing useful work. Its tokens are productive and profitable. Now, compute is revenue,” Jensen Huang said on the earnings call. “And demand is accelerating.”
Nvidia also returned roughly $26 billion to shareholders in the quarter through buybacks and dividends, with approximately $99 billion remaining under its buyback authorization.
What the market had not priced properly, Bank of America argued, was the scale of what Nvidia had committed financially to keep the AI ecosystem running.
Nvidia’s $300 billion AI capital commitments and balance sheet risk
Nvidia is no longer just selling chips. It is increasingly financing the companies that buy them.
Bank of America estimated total capital commitments of approximately $300 billion, split between roughly $70 billion in direct equity investments and roughly $230 billion in residual value guarantees and backstops.
The equity side covers much of the AI supply chain, according to CNBC. The largest single check was $30 billion for OpenAI. Beyond that, Nvidia has invested in Anthropic, Safe Superintelligence, Intel, CoreWeave, Nebius, Lumentum, Coherent, Marvell, Synopsys, Nokia, Corning, and others.
More Nvidia:
The backstop commitments are the more unusual piece. A $105 billion backstop for SB Energy and a $125 billion backstop for a special-purpose vehicle involving six financial firms were both announced in August, as TheStreet reported.
Against those numbers, Bank of America estimated Nvidia could generate approximately $469 billion in free cash flow across the next two calendar years. The total committed capital represents roughly 64% of that figure.
In a scenario where AI demand stays strong, Nvidia may never have to absorb the full economic cost of those commitments at all.
The worst-case scenario, including purchase commitments and cloud service agreements, puts total obligations at approximately $500 billion. Even that figure represents only about 10% of Nvidia’s enterprise value.
Nvidia valuation de-rating and AMD comparison
Nvidia’s forward earnings multiple had collapsed by roughly 44% from its five-year historical median, putting it at less than half the forward multiple of AMD right now.
The most plausible explanation is that investors were treating the balance-sheet commitments as a tail risk and discounting accordingly.
Bank of America’s counter was that the market had de-rated Nvidia further than the actual worst-case math justified. The $96.2 billion revenue print and the $108 billion Q3 guidance give that counter argument more support than it had before the results landed, as TheStreet reported.
In a note shared with TheStreet on Aug. 25, analyst Vivek Arya reiterated a Buy rating and a $350 price target on Nvidia.Marcin/Getty Images
The Nvidia buyback case and the Apple comparison
The second catalyst Arya identified was buybacks. The comparison he drew was Apple.
Over more than a decade, Apple returned the vast majority of its free cash flow and retired roughly 43% of its shares outstanding. That buyback program put a floor under the stock and helped lift its valuation multiple from a low single-digit figure to the mid-twenties.
Nvidia currently returns roughly a third of its free cash flow to shareholders. Bank of America believes it could increase that to between half and three-quarters.
The $26 billion returned in Q2 alone, with $99 billion still in the buyback authorization, suggests the company already has the firepower to move in that direction.
By next year, Nvidia could be generating close to a billion dollars in free cash flow every single day. A larger buyback would give investors a second reason to hold the stock beyond the AI thesis alone.
What Nvidia’s earnings mean for its customer mix and investors
One data point the earnings call confirmed was the customer mix story. Amazon Web Services announced it will buy 2 million Nvidia GPUs and adopt the company’s new Vera CPU. That kind of hyperscaler commitment reinforces Nvidia’s customer breadth argument directly.
Nvidia’s CFO Colette Kress said capital expenditure among the top five hyperscalers is expected to increase to $1.3 trillion next year from $800 billion in 2026.
That is the demand backdrop Bank of America was betting on when it reiterated its Buy rating. The earnings report confirmed the bet was reasonable.
What happens to Nvidia’s balance-sheet commitments as that spending cycle plays out remains the more important question.
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