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Nvidia Corp shares rose 2.9% on Monday after Bank of America reiterated its Buy rating and named the chipmaker its top sector pick, arguing that a stronger focus on shareholder returns could become the next major catalyst for the stock.
The brokerage said Nvidia’s ability to generate substantial free cash flow and its discounted valuation versus other “Magnificent Seven” peers create room for a meaningful re-rating if the company increases dividends or accelerates buybacks.
Bank of America analysts wrote that with much of the ecosystem investment cycle likely complete, Nvidia could pivot toward shareholder returns. They added that higher cash returns could broaden ownership among dividend and income-focused funds, reduce concerns related to large acquisitions or vendor financing, and signal confidence in the durability of Nvidia’s growth.
The analysts noted that Nvidia trades at less than 20 times calendar 2027 estimated price-to-earnings and enterprise value-to-free-cash-flow multiples, compared with an average of 41.5 times for its Mag-7 peers.
Bank of America estimates Nvidia could generate more than $400 billion in free cash flow across calendar 2026 and 2027. The firm said this is roughly equivalent to the combined free cash flow of Apple and Microsoft over the same period, while Nvidia trades at more than a 50% discount to peers on valuation metrics and at about a 30% lower market cap-to-free-cash-flow multiple.
Bank of America said investor concerns about growth durability and capital allocation have weighed on Nvidia’s valuation despite its dominant position in artificial intelligence infrastructure.
The report also highlighted two additional headwinds:
Despite these concerns, Bank of America expects Nvidia to maintain more than 70% of AI value share, supported by its broad product portfolio, software ecosystem, supply chain investments, and enterprise adoption.
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