Bank of America doubles down on Nvidia stock after earnings

NVDA +8.74%

BAC -1.70%

Nvidia reported earnings on Aug. 26, and Wall Street expected a beat. Bank of America was not particularly focused on that part of the story.

Instead, the firm's note, published ahead of the report, centered on one question: whether the market had properly priced the scale of what Nvidia has been doing with its balance sheet.

According to Bank of America, the answer was no. Nvidia's results 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 about 64% upside from where the stock was trading that day.

The note's title underscored the firm's focus: "Balance sheet disclosures could speak louder than EPS beat."

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Nvidia reported revenue of $96.2 billion for the second fiscal quarter, up 106% year over year and well above consensus expectations of about $92 billion, according to Nvidia's official earnings release. Data center revenue reached $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 about $26 billion to shareholders during the quarter through buybacks and dividends, with roughly $99 billion remaining under its buyback authorization.

Bank of America's point was that the market had not fully priced the scale of Nvidia's financial commitments to keep the AI ecosystem moving, even as the company continues to generate substantial cash and return capital to shareholders.

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 about $300 billion, including roughly $70 billion in direct equity investments and roughly $230 billion in residual value guarantees and backstops.

The equity investments span much of the AI supply chain, according to CNBC. The largest single commitment was a $30 billion investment in OpenAI. Nvidia has also invested in Anthropic, Safe Superintelligence, Intel, CoreWeave, Nebius, Lumentum, Coherent, Marvell, Synopsys, Nokia, Corning, and others.

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The more unusual part involves the backstop commitments. 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.

Based on those figures, Bank of America estimated Nvidia could generate about $469 billion in free cash flow over the next two calendar years. The total committed capital would equal roughly 64% of that amount.

If AI demand remains strong, Nvidia may never have to absorb the full economic cost of those commitments.

In a worst-case scenario that includes purchase commitments and cloud service agreements, total obligations could reach about $500 billion. Even that amount would represent only around 10% of Nvidia's enterprise value.

Nvidia valuation de-rating and AMD comparison

Nvidia's forward earnings multiple had fallen by about 44% from its five-year historical median, leaving it at less than half the forward multiple of AMD.

The most plausible explanation, Bank of America said, is that investors were treating the balance-sheet commitments as a tail risk and discounting the stock accordingly.

The firm's counterargument was that the market had de-rated Nvidia more than the actual worst-case math justified. Nvidia's $96.2 billion revenue result and $108 billion Q3 guidance gave that view more support than it had before the earnings release, as TheStreet reported.

The Nvidia buyback case and the Apple comparison

Arya's second catalyst was buybacks. His comparison was Apple.

Over more than a decade, Apple returned most of its free cash flow to shareholders and retired about 43% of its shares outstanding. That buyback program helped support the stock and lift its valuation multiple from a low single-digit level to the mid-twenties.

Nvidia currently returns roughly one-third of its free cash flow to shareholders. Bank of America believes that could rise to between one-half and three-quarters.

The $26 billion returned in the second quarter alone, along with $99 billion still available under the buyback authorization, suggests Nvidia already has the capacity to move in that direction.

By next year, Nvidia could be generating close to $1 billion in free cash flow every day. A larger buyback could give investors a second reason to own the stock beyond the AI thesis itself.

What Nvidia's earnings mean for its customer mix and investors

One point confirmed on the earnings call was Nvidia's customer mix. Amazon Web Services said it will buy 2 million Nvidia GPUs and adopt the company's new Vera CPU. That commitment from a hyperscaler reinforces Nvidia's customer breadth argument.

Nvidia CFO Colette Kress said capital expenditure among the top five hyperscalers is expected to rise 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, and it helps explain why the firm viewed the earnings release as validation rather than a reset. At the same time, the scale of Nvidia's commitments means investors will likely keep watching how those obligations evolve alongside spending by hyperscalers and the broader AI supply chain.

What happens to Nvidia's balance-sheet commitments as that spending cycle continues remains the key question.

Related: Goldman Sachs spots huge twist ahead of Nvidia's earnings

This story was originally published by TheStreet on Aug. 27, 2026, where it first appeared in the Investing section. Add TheStreet as a Preferred Source by clicking here.