UBS flags Nvidia valuation risk as peers raise targets ahead of earnings

Nvidia shares closed down 4.42 per cent at $225.32 on 15 May, reflecting broader weakness across the semiconductor sector that also saw declines in peers such as Intel and AMD. The dip comes amid heightened investor nervousness ahead of the company’s fiscal 2027 first-quarter earnings report, scheduled for release on 20 May. While the stock has benefited from increased capital expenditure plans by hyperscalers and strong sector performance, UBS analysts have issued a cautionary note regarding the sustainability of Nvidia’s current valuation metrics.

In a recent research note, UBS analysts warned that Nvidia’s cash flow return on investment (CFROI) is projected to reach 82 per cent this year. The bank highlighted that this level is historically unsustainable, noting that only 0.09 per cent of global stocks have maintained returns above 50 per cent for five years, and just 0.02 per cent for a decade. UBS cited crowded long positions in the semiconductor sector and a shift by hyperscalers from asset-light to asset-heavy business models as factors likely to drive down CFROI over the next three years.

Despite the caution from UBS, other major institutions have raised their price targets for the chipmaker. TD Cowen analyst Joshua Buchalter increased his target to $275 from $235, citing an order pipeline for Blackwell and Rubin products that exceeds $1 trillion. Buchalter, who ranks highly for analyst accuracy, expects Nvidia to beat quarterly revenue estimates by approximately $1 billion to $2 billion, driven by strong fundamentals and ongoing expansion in hyperscaler spending.

Bank of America analyst Vivek Arya also upgraded his outlook, raising his price target to $320 from $300. Arya based his revision on a 28 times multiple of his estimate for the price-to-earnings ratio excluding cash for calendar year 2027, a valuation that sits within Nvidia’s historical forward year range of 25 to 56 times. Both Buchalter and Arya reiterated buy ratings for the stock, pointing to the company’s dominant market position in AI chips.

The conflicting signals highlight the complex sentiment surrounding Nvidia as it approaches its earnings release. CEO Jensen Huang has previously noted the paradox of the company’s performance, stating that a bad quarter suggests an AI bubble while a great quarter fuels it. Investors are now weighing UBS’s valuation warnings against the strong order visibility highlighted by TD Cowen and Bank of America as they prepare for the May 20 report.