Shares of Nvidia edged lower on Wednesday, as investors grew cautious about the outlook for artificial intelligence spending and awaited earnings from major technology companies.
The stock fell around 1% to $211.38 in early trading, following broader weakness in semiconductor names a day earlier.
Nvidia’s near-term performance is likely to depend on signals from Big Tech regarding AI-related spending and infrastructure buildout.
OpenAI concerns weigh on sentiment
Chip stocks came under pressure after a report by The Wall Street Journal said OpenAI had missed internal revenue and user targets, raising concerns about the pace of AI adoption and investment.
Nvidia, along with Advanced Micro Devices and Broadcom, has supply agreements with OpenAI, making the companies particularly sensitive to changes in its outlook.
Nvidia has also made significant financial commitments to OpenAI, investing $30 billion in its latest funding round after scaling back an earlier plan that had envisioned as much as $100 billion in investment.
The report also highlighted intensifying competition in the AI space, with rivals such as Anthropic gaining traction in areas including coding and enterprise applications.
Big Tech earnings in focus
Investor attention is now shifting to earnings from major technology firms, which are expected to provide clearer signals on demand for AI infrastructure.
Companies including Microsoft, Alphabet, Meta Platforms, and Amazon are set to report March-quarter results later today.
A key metric for Nvidia investors will be capital expenditure guidance, which serves as a proxy for future spending on AI chips.
Beyond overall spending levels, investors are also watching for commentary on the mix of chip procurement.
Large technology companies have increasingly explored custom-designed chips, often developed in partnership with firms such as Broadcom, as a potentially more cost-effective alternative for specific workloads.
While these chips may not match the overall performance of Nvidia’s graphics processing units, they could reduce reliance on third-party suppliers for certain applications.
BofA sees valuation upside
Despite near-term concerns, BofA Securities, earlier this week, reiterated a Buy rating on Nvidia with a $300 price target, citing both valuation and capital allocation opportunities.
The firm said Nvidia could shift toward increased shareholder returns as its major ecosystem investments near completion, a move that could attract a broader investor base and ease concerns about large acquisitions or complex financing arrangements.
According to BofA, Nvidia trades at less than 20 times its projected 2027 earnings, compared with an average of 41.5 times for other “Magnificent Seven” stocks.
Currently, the stock trades at a price-to-earnings ratio of 42.69 and a price-to-earnings-growth ratio of 0.63, suggesting that its valuation may not fully reflect its growth potential.
The firm also noted that Nvidia trades at roughly a 30% discount on a market capitalisation-to-free cash flow basis relative to peers, reflecting investor uncertainty about long-term growth durability.
Investors use P/E multiples to gauge a stock’s valuation relative to its anticipated future earnings.
With the growth of online trading apps, tracking such metrics has become significantly easier and more accessible to market participants.
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