BofA has presented a contrarian view on recent "AI bubble" discussions, arguing that skepticism is actually a "reverse positive" for chip stocks, helping prevent overcrowding. NVIDIA is significantly undervalued, as its stock price does not reflect its true growth potential.

On November 11, BofA stated in its latest research report that the current widespread skepticism about AI capital expenditures is not a risk but rather a "reverse positive" that ensures sustainable returns in the sector. This skepticism helps prevent excessive crowding in the market.

The bank believes recent volatility in AI chip stocks stems from correctable macro factors rather than a deterioration in the fundamentals of AI spending. In fact, strong performance in AI-related industries and NVIDIA's optimistic outlook indicate robust underlying demand.

BofA noted that doubts about OpenAI's ambitious plans are overly simplistic, ignoring the fact that AI investment is primarily driven by defensive strategies of major tech giants. Notably, NVIDIA, as the industry leader, is significantly undervalued, with its current stock price not reflecting its true growth potential.

**AI Skepticism: A Healthy "Contrarian Positive" Signal** Despite an average 7-8% decline in large AI semiconductor stocks last week, BofA argues this does not signal trouble in the AI spending cycle. Instead, the volatility was driven by macro factors such as concerns over a potential U.S. government shutdown, weak employment data, tariff uncertainties, and misinterpretations of OpenAI commentary—all short-term noise rather than fundamental negatives.

True fundamental signals point the opposite way. The report highlights strong performance in AI-related sectors, such as memory and small-to-medium optical module stocks, which rose 14% last week, indicating widespread AI infrastructure development.

Additionally, NVIDIA's disclosure of a $500+ billion data center business outlook for FY2025/26 at its recent GTC conference further confirms strong and sustained AI demand.

Thus, BofA believes prevailing skepticism helps maintain market rationality and reaffirms its "Buy" ratings on core AI beneficiaries, including NVIDIA, Broadcom, and AMD in data centers, as well as Lam Research (LRCX), KLA (KLAC), and Applied Materials (AMAT) in semiconductor equipment.

**Refuting "Unsustainable AI Spending": Defensive Investments by Giants Are Key** A common bearish argument is that OpenAI's inability to justify its $1.4 trillion long-term commitment suggests AI stocks are overvalued. BofA dismisses this as a "lazy and cherry-picked argument."

First, OpenAI's grand plans are not yet realized and face practical constraints like power and data center capacity. More importantly, most AI spending today comes not from startups but from profitable "hyperscalers" (large cloud providers).

For these tech giants, upgrading to accelerated computing (from traditional CPUs) is both "mission-critical" and a "defensive" investment. The report cites Google as an example: its $92 billion capital expenditure defends its $200+ billion search business leadership against rivals like ChatGPT and Perplexity.

Meanwhile, private AI firms like OpenAI (with over 1 million business customers) and Anthropic (over 300,000 business customers) are rapidly attracting enterprise users, pressuring public software and IaaS providers to increase AI investments. Thus, the core drivers of AI spending remain solid.

**NVIDIA: Not a Bubble, But Undervalued** The report emphasizes NVIDIA's attractiveness, with its pricing reflecting only "very cautious AI deployment." Based on NVIDIA's disclosed $500 billion data center orders for FY2025/26, BofA estimates its 2026 EPS could reach ~$8.

This implies a P/E of just 24x for a company with 50%/70% YoY sales/EPS growth—aligned with market averages and hardly "high valuation."

A scenario analysis further illustrates its potential: even if AI capex reaches only 50% of NVIDIA's projected $3–4 trillion range by 2030, EPS could exceed $40/share, implying a forward P/E below 5x at current prices.

BofA calls this figure "unreasonable," reinforcing its view that despite bubble headlines, NVIDIA's stock is actually undervalued.