Morningstar Sees NVIDIA as Undervalued! Target Price $280, Potential Upside of 40%

Over the past few years, NVIDIA (NVDA-US) has been one of the most highly valued stocks in the market. However, since mid-May, concerns about potential slowdowns in capital expenditures by hyperscale cloud providers have caused NVIDIA's stock price to decline by approximately 17%, prompting Morningstar to unusually classify the stock as 'undervalued'.

According to a report by Business Insider, Morningstar recently released an analysis estimating NVIDIA's fair value at $280 per share. This represents about a 40% upside compared to last Friday’s (31st) closing price of $200.75.

Morningstar cites two core factors supporting this valuation. First, NVIDIA possesses a wide 'economic moat,' with its GPU chips, CUDA software ecosystem, and related products maintaining a technologically superior and difficult-to-replace position in the market.

Second, as major cloud service providers continue to invest heavily in AI infrastructure, Morningstar expects NVIDIA's revenue to maintain strong growth momentum, even forecasting an 80% revenue growth rate by 2027.

Notably, since early 2023, Morningstar's fair value estimates for NVIDIA have generally moved in tandem with its actual stock price. However, starting in October last year, a clear divergence has emerged between the two.

While Morningstar believes NVIDIA's current stock price remains undervalued, it has also assigned the stock a 'very high' uncertainty rating.

One of the risks highlighted is that hyperscale cloud providers—the largest customers of NVIDIA—may gradually develop their own AI hardware in the future. However, Morningstar believes these in-house products are unlikely to directly compete with NVIDIA's offerings in the short term and would struggle to fully replace them.

Another major risk is that hyperscale cloud providers may reduce AI capital expenditures in response to investor pressure.

Last week, Meta (META-US) was sold off by the market after raising its capital expenditure forecast, while Microsoft (MSFT-US) was favored by investors for maintaining its spending plans. However, Meta's financial results fell short of market expectations, whereas Microsoft delivered better-than-expected results—another key factor behind the divergent stock performance.

Nonetheless, Morningstar does not believe AI infrastructure investment will cool down in the short term.

Brian Colello, Morningstar's senior stock analyst, stated in the report: 'Given that AI capital expenditures are highly likely to remain strong in the short and medium term, and有望 continue growing in the long term, we believe the market is underestimating NVIDIA's growth potential.'

He added, 'Right now, this stock looks very attractive.'