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After eight months of stagnant price action shares of Nvidia trade at their lowest valuation in years.
Nvidia stock has been weighed down by excessive AI spending concerns, but is this warranted?
A familiar name found its way back onto the Zacks Rank today, as analysts once again raise the earnings outlook for AI semiconductor juggernaut Nvidia ((NVDA - Free Report) ). At its most recent Nvidia GTC conference, CEO Jensen Huang was not coy about how large he believes the company can grow, sharing a forecast of $1 trillion in AI chip sales by the end of 2027.
Nvidia has been growing at an almost unfathomable pace since the AI boom began, and it has managed to maintain that trajectory even at its mammoth $4.4 trillion market capitalization. However, despite this continued momentum in its core business, NVDA stock has been stagnant for nearly eight months, essentially unchanged over that period.
Concerns around overvaluation and excessive capital expenditures, with uncertain returns from hyperscalers, have weighed on the mega-cap technology and Magnificent Seven cohort. I am taking the over on these concerns, as every metric I follow shows that not only is new data center capacity for leading-edge AI models being filled, but it is being oversubscribed. Leading cloud providers, Alphabet, Microsoft, and Amazon as well as newcomer Oracle, are all seeing accelerating growth in these segments, with Oracle boasting an astounding $500 billion in future contracted revenue. Furthermore, if you are using LLMs such as OpenAI or Claude, you will often encounter recommended usage times, reflecting how stretched server capacity has become.
All of this is to say that Nvidia remains one of the most advantageously positioned players in the AI industry, and that Jensen’s forecast could very well come to fruition. At the same time, due to the stock’s stagnation, Nvidia’s earnings multiple has contracted to a notably low level. Below, I break down the opportunity.
Image Source: Zacks Investment Research
Earnings Upgrades as a Stock Price Catalyst
Analysts have been steadily upgrading their outlook for Nvidia’s earnings, with revisions nearly unanimous over the past 60 days and continuing as recently as the last week. Based on this trend, Nvidia carries a Zacks Rank #1 (Strong Buy). Long-term Zacks readers may recall that in early 2023, Nvidia sat atop the Zacks Rank for nearly two years, as Zacks proprietary methodology successfully anticipated the stock’s incredible run. In that context, this upgrade cycle could mark the beginning of another significant move higher.
Image Source: Zacks Investment Research
The technicals paint a fairly straightforward picture for investors to watch. In the price chart below, NVDA has formed a clear consolidation pattern and is currently resting at support. Time will tell whether this level holds, though just below it sits another key level, the prior all-time highs, which could offer an additional buying area.
That said, whether the chart ultimately resolves higher or lower in the near term is less important to the long-term thesis. Unless the AI boom collapses entirely, Nvidia’s discounted valuation remains the most compelling aspect of the investment case, as detailed below.
Image Source: TradingView
Nvidia Shares Trade at their Lowest Multiple in Years
Today, Nvidia shares trade at 23.7x forward earnings, near their lowest level in a decade and well below the 10-year median multiple of 45.3x. At this valuation, investors are effectively buying the company at a market-like multiple, but with earnings growth more than three times that of the broader index and sales growth more than five times higher.
Nvidia is projected to grow earnings at an annual rate of 39.1% over the next three to five years, while sales are expected to increase 63% this year and 27.5% next year. These figures suggest the stock is trading at a discount relative to its growth profile. The numbers speak for themselves, if the AI buildout continues as expected, this setup appears highly compelling.
Image Source: Zacks Investment Research
Should Investors Buy Shares in NVDA?
Nvidia remains the central beneficiary of one of the most powerful investment themes in decades. Despite continued strength in its underlying business, the stock has gone nowhere for months, allowing valuation to reset to historically attractive levels. At the same time, earnings revisions are moving higher and demand for AI infrastructure continues to exceed supply.
While near-term volatility is always possible, the combination of strong fundamentals, improving sentiment, and a compressed multiple creates a favorable risk-reward setup. For investors with a medium- to long-term horizon, Nvidia still looks like one of the most compelling opportunities in the market today.
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Bull of the Day: Nvidia (NVDA)
Key Takeaways
A familiar name found its way back onto the Zacks Rank today, as analysts once again raise the earnings outlook for AI semiconductor juggernaut Nvidia ((NVDA - Free Report) ). At its most recent Nvidia GTC conference, CEO Jensen Huang was not coy about how large he believes the company can grow, sharing a forecast of $1 trillion in AI chip sales by the end of 2027.
Nvidia has been growing at an almost unfathomable pace since the AI boom began, and it has managed to maintain that trajectory even at its mammoth $4.4 trillion market capitalization. However, despite this continued momentum in its core business, NVDA stock has been stagnant for nearly eight months, essentially unchanged over that period.
Concerns around overvaluation and excessive capital expenditures, with uncertain returns from hyperscalers, have weighed on the mega-cap technology and Magnificent Seven cohort. I am taking the over on these concerns, as every metric I follow shows that not only is new data center capacity for leading-edge AI models being filled, but it is being oversubscribed. Leading cloud providers, Alphabet, Microsoft, and Amazon as well as newcomer Oracle, are all seeing accelerating growth in these segments, with Oracle boasting an astounding $500 billion in future contracted revenue. Furthermore, if you are using LLMs such as OpenAI or Claude, you will often encounter recommended usage times, reflecting how stretched server capacity has become.
All of this is to say that Nvidia remains one of the most advantageously positioned players in the AI industry, and that Jensen’s forecast could very well come to fruition. At the same time, due to the stock’s stagnation, Nvidia’s earnings multiple has contracted to a notably low level. Below, I break down the opportunity.
Image Source: Zacks Investment Research
Earnings Upgrades as a Stock Price Catalyst
Analysts have been steadily upgrading their outlook for Nvidia’s earnings, with revisions nearly unanimous over the past 60 days and continuing as recently as the last week. Based on this trend, Nvidia carries a Zacks Rank #1 (Strong Buy). Long-term Zacks readers may recall that in early 2023, Nvidia sat atop the Zacks Rank for nearly two years, as Zacks proprietary methodology successfully anticipated the stock’s incredible run. In that context, this upgrade cycle could mark the beginning of another significant move higher.
Image Source: Zacks Investment Research
The technicals paint a fairly straightforward picture for investors to watch. In the price chart below, NVDA has formed a clear consolidation pattern and is currently resting at support. Time will tell whether this level holds, though just below it sits another key level, the prior all-time highs, which could offer an additional buying area.
That said, whether the chart ultimately resolves higher or lower in the near term is less important to the long-term thesis. Unless the AI boom collapses entirely, Nvidia’s discounted valuation remains the most compelling aspect of the investment case, as detailed below.
Image Source: TradingView
Nvidia Shares Trade at their Lowest Multiple in Years
Today, Nvidia shares trade at 23.7x forward earnings, near their lowest level in a decade and well below the 10-year median multiple of 45.3x. At this valuation, investors are effectively buying the company at a market-like multiple, but with earnings growth more than three times that of the broader index and sales growth more than five times higher.
Nvidia is projected to grow earnings at an annual rate of 39.1% over the next three to five years, while sales are expected to increase 63% this year and 27.5% next year. These figures suggest the stock is trading at a discount relative to its growth profile. The numbers speak for themselves, if the AI buildout continues as expected, this setup appears highly compelling.
Image Source: Zacks Investment Research
Should Investors Buy Shares in NVDA?
Nvidia remains the central beneficiary of one of the most powerful investment themes in decades. Despite continued strength in its underlying business, the stock has gone nowhere for months, allowing valuation to reset to historically attractive levels. At the same time, earnings revisions are moving higher and demand for AI infrastructure continues to exceed supply.
While near-term volatility is always possible, the combination of strong fundamentals, improving sentiment, and a compressed multiple creates a favorable risk-reward setup. For investors with a medium- to long-term horizon, Nvidia still looks like one of the most compelling opportunities in the market today.