The NVIDIA earnings season has arrived, and the numbers themselves are no longer the primary focus. On May 18th, analysts at BofA Securities, led by Vivek Arya, released a preview report for NVIDIA's Q1 earnings, scheduled for release after the market close on Wednesday, May 20th (Eastern Time). Historically, over the past ten quarters, NVIDIA's actual revenue has averaged 7% to 8% above management's guidance. Management previously provided F1Q27 revenue guidance of $78 billion. Based on this trend, actual revenue is highly likely to land in the $83 to $84 billion range, while the current market consensus stands at only $78.7 billion. In other words, "beating expectations" is almost a certainty. However, analysts believe the true market-moving factors following the earnings release will revolve around the following five questions. **Cash Returns: Can NVIDIA's "Frugality" Change?** This is the most discussed topic in the report and is considered the core reason for NVIDIA's persistent valuation discount. NVIDIA is currently the largest company by market capitalization in the S&P 500, with a weight of 8.3%, surpassing the historical peaks of Apple (7.9%) and Microsoft (7.2%). The problem, however, is that NVIDIA's shareholder returns are severely mismatched with its scale. The data is stark: from 2022 to 2025, NVIDIA's free cash flow payout ratio (dividends + buybacks) averaged only 47%. In the same period, the peer group average was 80%, and even NVIDIA's own average over the preceding decade was 80%. Simultaneously, NVIDIA's current dividend yield is a mere 0.02%, compared to a peer average of 0.89%. Among equity income funds, NVIDIA is held by only 16% of funds, while Microsoft is held by 57% and Apple by 32%.
Where is the money going? Analysts point out that NVIDIA is investing heavily in its ecosystem—OpenAI, Anthropic, and technology partners. These investments are viewed controversially by some outsiders, with suggestions of "circular financing," where NVIDIA lends money to customers who then use it to buy NVIDIA's chips. How large is the valuation discount? Data shows NVIDIA's expected P/E ratios for 2026/2027 are 26x/19x, while the average for other "Magnificent Seven" members is 49x/42x, representing a discount of nearly 50%. A more specific comparison: Analysts forecast that NVIDIA's combined free cash flow for 2026 and 2027 will exceed $430 billion, higher than the roughly $375 billion combined for Apple and Microsoft. Yet, NVIDIA's market cap is approximately $5.46 trillion, about 28% lower than the combined $7.5 trillion for Apple and Microsoft.
Analysts believe that if NVIDIA increases its dividend and buyback efforts, it could attract more long-term, yield-preferring capital, narrowing the valuation discount while also dispelling "circular financing" concerns. They list this change as a "potential catalyst for the second half of the year." **Vera Rubin: When is the Next-Generation Chip Coming?** NVIDIA's current flagship product is the Blackwell series. The market is focused on: When will the next-generation Vera Rubin platform officially ramp up? The bank's assessment is the second half of 2026. Vera Rubin (codename R200) will use TSMC's 3nm process and share the "Oberon" rack architecture with Blackwell Ultra, making the product transition relatively smooth, with limited expected impact on gross margins. Looking further ahead, Vera Rubin Ultra (codename VR300) is slated for launch in the second half of 2027, featuring a new "Kyber" rack architecture, while the proportion of high-bandwidth memory (HBM) in costs is also expected to increase further.
The market also wants to hear NVIDIA's latest stance on the "$1 trillion revenue forecast" during the earnings call—NVIDIA previously provided an outlook for cumulative revenue of $1 trillion between 2025 and 2027, but contributions from LPU (Language Processing Unit) racks, CPUs, and Vera Rubin Ultra were not yet included. Will this be updated? **Gross Margin: Can the 75% Line Hold?** Gross margin is one of the core pillars supporting NVIDIA's valuation. Analysts judge that in the short term, due to Vera Rubin's use of Blackwell's rack architecture, gross margins should remain relatively stable during the product transition. However, in the medium to long term, the rising proportion of HBM memory costs is a persistent source of pressure.
Market consensus indicates NVIDIA's gross margin will fluctuate between 74% and 75%, a view the bank does not dispute but emphasizes that any gross margin performance exceeding expectations would be a positive catalyst. **How Will the AI Accelerator Market Size Forecast Be Updated?** BofA previously provided a "$1 trillion" forecast framework for NVIDIA's AI market from 2025 to 2027. This earnings report, the market is watching to see if NVIDIA will update this forecast, particularly by incorporating three previously unaccounted-for growth drivers: * LPU (Language Processing Unit) racks * Vera CPU (NVIDIA's self-developed server CPU) * Vera Rubin Ultra
The bank estimates that by 2030, the total AI accelerator market size will reach approximately $1.17 trillion, with NVIDIA maintaining a market share of about 68% to 70%.
Specifically, NVIDIA's AI accelerator revenue is projected to grow from $102.2 billion in 2024 to $800 billion in 2030, while AMD's is expected to increase from $5 billion to $80.1 billion, and Broadcom's from $9.3 billion to $181.9 billion over the same period. **Is the Competitive Threat from Google's TPU and CPU Exaggerated?** A recent market narrative suggests that as AI enters the "Agentic AI" era, the importance of CPUs will surpass that of GPUs, thereby threatening NVIDIA's moat. The bank explicitly disagrees with this view, offering two reasons: First, NVIDIA's self-developed "Vera CPU" is expected to see new developments disclosed at the upcoming Computex conference, and its competitiveness in the standalone CPU market should not be underestimated. Second, in already large-scale deployments of Blackwell and TPU clusters, the CPU-to-GPU ratio is already 1:2, which does not align with the narrative that "Agentic AI requires more CPUs." The conclusion is: While the CPU market is large, it has numerous competitors (with strong contenders in both x86 and ARM architectures). NVIDIA's dominant position in the GPU/AI accelerator field is unlikely to be challenged in the short term. It is estimated that by 2030, NVIDIA will maintain approximately a 70% revenue share in the total AI addressable market exceeding $1.7 trillion. **Valuation: The "Tech Leader" at a 50% Discount** Finally, returning to valuation. The report uses a set of data to directly highlight NVIDIA's current valuation paradox. Based on CY26/27 expected P/E ratios, NVIDIA trades at 26x/19x, while the "Magnificent Seven" (Mag-7) average is 49x/42x—NVIDIA is discounted by nearly 50%. Based on EV/FCF (Enterprise Value/Free Cash Flow), NVIDIA trades at 28x/20x, while the Mag-7 average is 83x/59x—a discount exceeding 66%. Based on PEG (Price/Earnings to Growth ratio), NVIDIA trades at 0.41x, while the Mag-7 average is 2.61x, and the S&P 500 overall is above 1.3x.
BofA maintains a "Buy" rating with a price target of $320, based on a CY27 expected P/E of 28x (ex-cash), positioned at the mid-to-lower end of NVIDIA's historical valuation range of 25x to 56x.
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