Nvidia shares will surge again this year due to a strong upgrade cycle in its gaming graphics chip business, according to Bank of America Merrill Lynch.

BofAML raised its price target for the chipmaker to the highest among the firms covering Nvidia, citing the company's product leadership in multiple growth areas in technology.

Nvidia has been one of the best performing stocks in the market during the past year. Its shares are up 113 percent in the previous 12 months compared with the 's 24 percent return.

The company's shares were up 1.6 percent in Friday morning trading.

While Nvidia "trades at a premium valuation, we believe this is justified by Nvidia's leadership in the largest and fastest growing markets in semis including [artificial intelligence], gaming, [virtual reality], and autonomous cars," analyst Vivek Arya wrote in a note to clients Thursday. Arya said there's a "large upgrade opportunity for Nvidia cards."

Arya reiterated his buy and top-pick ratings for Nvidia shares. He raised his price target to $275 from $251, representing 23 percent upside from Thursday's close. He now has the highest price target on the stock out of 29 analysts, according to FactSet.

The analyst said the company's current generation "Pascal" gaming graphics cards have 40 percent share of Nvidia card owners on PC gaming distribution platform Steam. He said there is still "a large upgrade potential" from the previous Nvidia "Maxwell" cards, which are at 48 percent share.

"Separately, Nintendo Switch console [with its approximately $40 Nvidia processor] became the best-selling console of all time in the US during its first 10 months on the market," he wrote. "Lastly, we expect Nvidia to start rolling out its next-gen Volta cards in likely just the premium segment, during 2H18, which could create further upgrade and [advance simulation products] tailwinds."