Nvidia stock remains below $200, but analysts see over 40% upside ahead

Nvidia shares traded little changed on Tuesday after recovering from early losses, although the stock remained below the psychologically important $200 level.

Investors looked to balance an increasingly attractive valuation against concerns over artificial intelligence financing and upcoming Big Tech earnings.

The stock had fallen sharply in the previous session, losing 5% and surrendering its position as the world's most valuable listed company to Apple.

Despite the recent weakness, Nvidia's valuation has become increasingly attractive.

The stock closed Monday on a forward price-to-earnings ratio of 18.16, its lowest level since April 2015, according to Dow Jones Market Data.

Valuation improves as investors assess new risks

Monday's decline came amid a broader selloff in semiconductor stocks following reports that a Chinese company had begun mass-producing key chipmaking equipment.

Investor sentiment was also weighed down by a Wall Street Journal report that Nvidia is discussing a roughly $250 billion financing guarantee for OpenAI to support a large data centre project in Ohio.

The arrangement would help OpenAI secure more favourable financing terms while supporting long-term demand for Nvidia's artificial intelligence chips.

The report sparked concerns among some investors that financing arrangements between Nvidia and AI customers could resemble the circular investment structures seen during the dotcom era.

Morningstar backs long-term outlook

Morningstar said it does not believe the reported financing discussions undermine the long-term investment case for Nvidia.

The research firm maintained its $280 fair value estimate for the company and said the shares remain undervalued despite concerns surrounding financing-backed AI infrastructure projects.

The target represents an around 40% upside from the current market price.

Morningstar said demand for artificial intelligence computing continues to expand rapidly, with AI hosting providers remaining constrained by available computing capacity rather than customer demand.

The firm also pointed to AMD's recent increase in its server CPU market forecast as evidence that demand for agentic AI continues to strengthen, supporting the need for additional AI infrastructure over the coming years.

Morningstar said its understanding is that Nvidia already provides financing backstops to some cloud infrastructure providers in exchange for sharing portions of future AI hosting revenue.

According to the firm, a similar arrangement with OpenAI would represent a much larger transaction but would remain consistent with Nvidia's broader strategy of expanding the AI ecosystem and supporting long-term demand for its hardware.

Big Tech earnings in focus

Investor attention has now shifted to quarterly results from major technology companies, which are expected to provide fresh insight into the pace of artificial intelligence investment.

Microsoft, Meta Platforms, and Amazon are scheduled to report earnings this week, with investors expected to closely monitor capital expenditure guidance as an indicator of future demand for Nvidia's processors.

Beyond overall spending levels, investors will also look for commentary on the types of AI hardware companies intend to deploy.

Several large technology companies have increasingly developed custom processors with partners such as Broadcom for specific workloads.

While those chips are designed to complement rather than fully replace Nvidia's graphics processing units, investors continue to monitor whether greater adoption of custom silicon could gradually reduce reliance on third-party suppliers.