NVDA Stock Is A ‘Bargain’ Trading 30% Below $280 Fair Value, Morningstar Says

• Despite the recent recovery in AI-linked stocks, NVDA stock is still on track to post a 5% loss for the week and a 2% dip in July.
• MorningStar said Nvidia has a ‘Wide’ economic moat, due to its GPU and CUDA software ecosystem, which create significant competitive advantages despite rising competition.
• However, the firm also flagged ‘High’ uncertainty, citing customer concentration and geopolitical risks, including U.S. export restrictions on China.

Nvidia (NVDA) shares rose in early morning trading Friday, still on track for a weekly decline, with Morningstar stating that the shares are now trading at a “bargain” after the recent AI-led selloff.

“The stock looks like a bargain, trading 30% below our $280 fair value estimate,” the report said, adding that NVDA now fits the profile of a “growth-at-reasonable-price” stock. “Although Nvidia has continued to deliver strong earnings growth this year, its valuation has become more reasonable relative to our growth projections and fair value estimate,” it said.

NVDA stock gained as much as 1.5% in pre-market trade. On Stocktwits, retail sentiment around the Jensen Huang-led company rose to ‘bullish’ from ‘neutral’ over the past day, accompanied by chatter at ‘high’ levels. 

The shares are on track to post a loss of over 5% for the week, as per Thursday’s closing price, and a drop of 2.5% for the month of July. 

Nvidia’s Competitive Edge Remaining Intact

Morningstar assigned NVDA stock a ‘Wide’ economic moat rating, its highest classification. It cited that intangible assets tied to its GPU technology and high customer switching costs created by its CUDA software platform as the reason why. 

While the firms expects tech companies to find secondary sources for its GPUs or build in-house solutions to diversify, it said those efforts may only reduce Nvidia’s dominance. They will not take away the “industry leadership” status established by Nvdia’s GPUs and its Cuda platform, because the cost for customers to switch away from Nvidia entirely would be considerable.

Customer Concentration, China Remain Key Risks

Morningstar also assigned NVDA stock a ‘Very High’ Uncertainty Rating, tied primarily to how concentrated its customer base is. A handful of major tech companies drive the bulk of Nvidia's demand, and each has an incentive to eventually diversify toward in-house chips or alternative suppliers like Advanced Micro Devices (AMD). 

The firm also flagged geopolitical risk, particularly U.S. export restrictions that have repeatedly limited Nvidia's ability to sell AI products into China, as an ongoing overhang on the stock's outlook.

Europe AI Investment Could Provide Another Tailwind

According to Reuters, Nvidia (NVDA) may have another tailwind coming its way with the European Union planning to invest €10 billion in seven AI gigafactories to strengthen its AI infrastructure and narrow the technology gap with the U.S. and China. AMD, Nvidia and Qualcomm (QCOM) have reportedly signed letters of intent with the European Commission to provide chips to groups involved in the gigafactory projects.

NVDA’s stock has gained around 2.7% so far this year, and over 10% in the last 12 months.

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