NVIDIA's (NASDAQ:NVDA) $100bn in CY24/25E free cash flow generation creates a new opportunity for the company, according to BofA analysts, who maintained a Buy rating and $700 per share price target on the stock in a note Friday.
Analysts also maintained NVDA as its top sector pick. They explained this is due to the fact they believe the company's generative AI dominance can potentially help generate that ~$100bn of incremental free cash flow over the next two years.
"Of the ~$100bn FCF, we estimate only ~$30-$35bn could be deployed for buybacks (offset equity dilution), leaving a meaningful $65-70bn in ammunition for new organic & inorganic growth initiatives," wrote the analysts.
"NVDA's relatively depressed trading multiple – just 24x/20x CY24/25E PE versus 67%/26% pf-EPS growth – is partly due to uncertainty in CY25 growth prospects, and partly due to a very hardware dependent business unlike other large-cap software/internet peers that have recurring revenue profiles," they added.
BofA feels NVDA's solid free cash flow generation creates optionality in addressing the concerns, and in helping to expand the company's trading multiple back to its historical median 35x-40x. In addition, they noted that the key for the company will be building a recurring revenue profile.