This article first appeared on GuruFocus.
NVIDIA (NASDAQ:NVDA), a leading designer of processors for artificial intelligence and data centers, rose approximately 1.8% by Friday's close after Morningstar described the shares as undervalued. Morningstar maintained a $280 fair-value estimate after the stock had declined approximately 17% from its May level. The research firm said NVIDIA was trading about 30% below its fair-value estimate when its report was prepared.
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Morningstar senior equity analyst Brian Colello argued that the market was underestimating NVIDIA's longer-term growth prospects. The firm expects hyperscalers to continue investing heavily in AI infrastructure and doubts internally developed processors will easily replace NVIDIA's technology. Amazon (NASDAQ:AMZN) reinforced that view Friday by increasing planned 2026 capital expenditure to $220 billion and emphasizing that NVIDIA processors remained important for Amazon Web Services customers. However, Amazon continues developing its Trainium chips as an alternative for selected workloads.
Morningstar retained a very-high uncertainty rating, reflecting the possibility that hyperscalers reduce spending or shift more computing toward internally designed hardware. At Friday's closing price of approximately $198.50, the $280 estimate was about 41% higher, although fair-value estimates are opinions rather than guaranteed outcomes. Investors may now compare Morningstar's longer-term assessment with NVIDIA's customer concentration and the growing internal-chip programs of major cloud companies. Hyperscaler earnings, capital-expenditure plans and NVIDIA's forthcoming results could provide additional evidence about whether current demand supports the valuation estimate.