Bank of America dismantles the semiconductor giants: NVIDIA Corporation (NVDA.US) has a PE ratio of 19 times, making it a value opportunity, while AMD (AMD.US) waits for a turnaround.

In a recent research report, Bank of America Corp's Global Research Department conducted a deep analysis of the US semiconductor industry, particularly providing detailed analyses of the current situation and future prospects of industry giants NVIDIA Corporation (NVDA.US) and AMD (AMD.US). NVIDIA Corporation: Performance Decline due to Multiple Factors, But Long-Term Value Still Favorable Since the H20 series products were formally banned for export to China on April 15, 2025, NVIDIA Corporation's stock price has plummeted by 14%, while during the same period, the Philadelphia Semiconductor Index (SOX.US) and the S&P 500 Index (SPX.US) dropped by 8% and 4% respectively. Currently, four major factors are suppressing NVIDIA Corporation's stock price: 1) sales restrictions in the Chinese market (accounting for 13%-14% of total sales, but only 3%-6% of data center business); however, Bank of America believes the risks in the Chinese market have been adequately priced in by the market; 2) the impending AI proliferation rules effective on May 15, which may pose risks to 10% of sales in sovereign countries; 3) gross margins expected to return to the mid-70% range in the second quarter of fiscal year 2025, but will require several sales cuts and cost pressures during this period; 4) low visibility on cloud service capital expenditures in fiscal year 2026. Bank of America's baseline scenario forecast for NVIDIA Corporation's 2026 and 2027 fiscal years has earnings per share (EPS) of $3.97 and $5.74 respectively, fully considering the above-mentioned risk factors. Despite facing numerous challenges, Bank of America reiterated a "buy" rating on NVIDIA Corporation. They believe that the current stock price fluctuations present a better buying opportunity, even though the target price has been lowered from $160 to $150 to reflect lower earnings expectations based on a 26x PE ratio for the 2026 fiscal year. From a valuation perspective, NVIDIA Corporation's current PE-based valuation is only 16.6x, and even in a worst-case scenario (i.e. 10% AI proliferation rule restrictions), the 2026 fiscal year PE is only 19x, significantly lower than its historical median of 30x and typical trough values of 23x. This indicates that even in a more pessimistic expectation, NVIDIA Corporation's valuation remains attractive. AMD: Similar Performance Decline, Market Holds Neutral Position Following similar logic to NVIDIA Corporation, Bank of America lowered its sales and EPS expectations for AMD to reflect the impact of the export ban on the MI308 series products to China. AMD is expected to incur $800 million in inventory and reserve expenses in the second quarter of 2025. Assuming a negative 40% gross margin for the 2025 fiscal year, the remaining shipment volume of the MI308 series products in the remaining time of 2025 could reach $13.3 billion, representing around 18% of their $75-80 billion data center GPU shipment volume and 4% of the company's total sales. For the 2026 and 2027 fiscal years, Bank of America expects the resistance faced by AMD to gradually decrease. They assume the MI308 series products to be the most advanced GPU products that can be sold in China and will gradually face more local competition. Additionally, starting from the third quarter of 2025, Bank of America slightly raised AMD's gross margin by 50 basis points to reflect a reduced dilutive contribution from the MI308 series products to the gross margin, while partially offsetting the cost increases due to potential tariffs and supply chain reshoring. Bank of America rates AMD as "neutral" with a target price lowered from $110 to $105. This target price corresponds to a PE ratio of 20x, matching a 0.9x PE growth ratio (PEG) based on the expected EPS of $5.29 for the 2026 fiscal year, which is generally aligned with the historical 1-2x PEG range for high-growth computer semiconductor companies. Risk Radar: From Weak Gaming to Manufacturing Reliance Recently, the demand in the gaming market has continued to weaken, directly threatening NVIDIA Corporation's traditional core business. According to Bank of America's analysis, consumer willingness to spend on gaming devices is decreasing, leading to a gradual reduction in NVIDIA Corporation's revenue share in the gaming market. Historical data shows that the gaming business used to contribute around 40% of NVIDIA Corporation's revenue. However, the year-on-year decline in sales in this sector is now reaching close to 20%, dragging down the company's overall performance and exposing potential vulnerabilities in NVIDIA Corporation's diversification process. Furthermore, AMD's competitive environment is becoming more intense, facing fierce competition from NVIDIA Corporation, Intel Corporation (INTC.US), and a number of startups. NVIDIA Corporation continues to introduce high-performance products in the GPU field to consolidate its market leadership position; meanwhile, Intel Corporation is making continuous efforts in the CPU market to regain lost ground through technological innovation and product iteration. At the same time, numerous AI startups are exerting pressure on AMD in specific niche areas with flexible market strategies and innovative technologies. Bank of America points out that AMD faces severe challenges in market share competition and needs to focus on technological innovation.Making greater efforts in market strategy is needed to break through the encirclement.At the same time, AMD's excessive reliance on Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSMC.US) as a sole supplier in the manufacturing process has become a major concern for its business development. According to industry analysis, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR handles almost all of AMD's chip manufacturing tasks. Once there is a problem in the production process of Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR, such as insufficient capacity, technological bottlenecks, or supply interruptions, AMD's product delivery will be severely affected. Bank of America has warned that this overly concentrated supply chain layout limits AMD's ability to respond to emergencies, increases its operational risks, and may lead to revenue losses and market share declines during supply chain disruptions. Finally, the intensifying competition between China and the United States in the technology sector has brought great uncertainty to the semiconductor industry. The U.S. government has recently implemented a series of export control policies, restricting the export of key technologies, products, and related services to China, including advanced semiconductor manufacturing equipment and materials. It has been reported that the U.S. has placed some Chinese companies and institutions on its export control list, disrupting technological exchanges and cooperation between China and the U.S. This tension may escalate further, leading to more export control measures, increasing the operating costs and market risks of companies like NVIDIA Corporation and AMD, and affecting their global business layout and long-term development strategies, casting a shadow over the entire semiconductor industry. Investment insight: Seeking certainty in uncertainty With NVIDIA Corporation and AMD facing sales restrictions in China, local semiconductor companies have a window of opportunity for development. NVIDIA Corporation expects its sales revenue from the Chinese market in fiscal year 2026 to decline by about 4%, while AMD will also face similar pressure. This indicates that Chinese local semiconductor companies have the opportunity to fill this market gap. Investors should closely monitor the breakthrough progress of these local companies in key technology areas such as GPU (Graphics Processing Unit) and CPU (Central Processing Unit). Especially in high-end chip manufacturing and AI (Artificial Intelligence) applications, any breakthrough in technological bottlenecks could lead to significant market share increases. The "AI diffusion rule" introduced by the U.S. government has had a profound impact on the global semiconductor industry. NVIDIA Corporation's global customer base includes 24% of sales revenue from non-China tier two and tier three countries, including 18% from Singapore. In the worst case scenario, up to 10% of these sales for NVIDIA Corporation may be restricted by the AI diffusion rule, leading to an additional decrease of 14% and 11% in its EPS in fiscal years 2026 and 2027, respectively. This situation highlights the importance of positioning chip design companies within the export control framework. Despite facing many challenges, NVIDIA Corporation's valuation remains attractive. During its performance pressure period, NVIDIA Corporation's forward Price/Earnings (P/E) ratio is only 17.4 times, significantly lower than its historical 5-year median of 30 times, and even lower than the typical value of 23 times during cyclical lows. This means that market panic may have exaggerated short-term risks, providing investors with an opportunity to buy leading companies at reasonable valuations. The business models and financial performances of NVIDIA Corporation and AMD highlight the importance of a full industry chain layout. NVIDIA Corporation is expected to see a 6% decrease in total sales revenue in fiscal year 2026 due to the embargo on its H20 series products. AMD anticipates a significant impact on its gross profit margin in fiscal year 2025, and a potential decrease in data center GPU shipments. This suggests that companies with the ability to layout the entire industry chain from chip design, manufacturing to software platform development are better equipped to deal with market fluctuations and policy changes.