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Is NVIDIA's Cheap Valuation an Opportunity to Invest in the Stock?
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Key Takeaways
NVIDIA trades at a forward P/E of 14.26, below the technology sector average of 17.80 and key chip peers.
NVDA's Q2 revenues surged 106% YoY to $96.22 billion, driven by strong AI demand and 117% Data Center growth.
NVDA expects Q3 revenues of $108 billion, with Vera Rubin projected to contribute 20% of Data Center revenues.
NVIDIA Corporation’s (NVDA - Free Report) stock appears attractively valued compared with the broader technology sector and several major semiconductor competitors. The stock currently trades at a forward 12-month price-to-earnings (P/E) ratio of 14.26, well below the Zacks Computer and Technology sector average of 17.80.
NVIDIA Forward 12-Month P/E Ratio
Image Source: Zacks Investment Research
NVIDIA also looks cheaper than some of its major semiconductor peers, including Intel Corporation (INTC - Free Report) , Marvell Technology, Inc. (MRVL - Free Report) and Advanced Micro Devices, Inc. (AMD - Free Report) . Intel, Marvell Technology and AMD currently trade at forward P/E multiples of 30.33, 26.00 and 33.31, respectively.
The valuation gap largely reflects NVIDIA's relatively weak stock performance this year. NVDA shares have gained just 8.4% year-to-date, significantly underperforming Intel, Marvell Technology and AMD, which have surged 62.6%, 101.7% and 118%, respectively.
NVIDIA YTD Price Return Performance
Image Source: Zacks Investment Research
This underperformance raises an important question: Is NVIDIA's relatively low valuation a buying opportunity, or does it signal concerns about the company's future growth?
We believe the current valuation offers an attractive entry point. NVIDIA remains the leading supplier of graphics processing units (GPUs) used to train and run AI models. Its products are essential to the expansion of AI infrastructure across data centers, cloud computing platforms and enterprises. With companies continuing to invest heavily in AI computing capacity, NVIDIA is well-positioned to benefit.
Its latest financial results show that AI demand remains strong, while its expanding product portfolio and growing customer base provide additional opportunities for revenue growth.
NVIDIA's Q2 Results Highlight the Strength of AI Demand
NVIDIA's second-quarter fiscal 2027 results reinforce the strength of its AI business. Revenues surged 106% year over year and 18% sequentially to $96.22 billion. The Data Center business remained the biggest growth driver, with revenues jumping 117% year over year and 18% sequentially to $89.02 billion.
Demand for NVIDIA's Blackwell platform remains strong, particularly among hyperscalers and other AI infrastructure customers. This demand is translating into impressive financial performance. Non-GAAP gross margin increased to 75% from 72.5% in the prior-year quarter, while non-GAAP operating income climbed 124% to $63.96 billion.
The bottom line was equally impressive. Non-GAAP net income rose 118% year over year to $53.95 billion, while earnings per share (EPS) surged 120% to $2.22.
NVIDIA Corporation Price, Consensus and EPS Surprise
NVIDIA's third-quarter guidance suggests that this momentum is unlikely to fade anytime soon. Management expects revenues of $108 billion, plus or minus 2%, indicating another strong sequential increase. The company expects non-GAAP gross margin of 74%, plus or minus 50 basis points.
This revenue outlook does not include any Data Center compute revenues from China. This means NVIDIA's near-term growth expectations are not dependent on a recovery in the Chinese market.
The continued adoption of Blackwell and the rollout of its next-generation Vera Rubin platform provide growth support. NVIDIA started production shipments of Vera Rubin in August, and major hyperscalers and AI infrastructure providers have already begun adopting the platform. Management expects Vera Rubin to contribute approximately 20% of Data Center revenues in the third quarter.
NVDA's AI Ecosystem Creates New Revenue Opportunities
NVIDIA's growth opportunity goes well beyond selling GPUs. The company is building a complete AI computing platform that includes central processing units (CPUs), networking products, software and integrated AI factory systems. This strategy allows NVIDIA to capture a larger share of customer spending as companies build and expand their AI infrastructure.
The financial opportunity from each new generation of products is also increasing. NVIDIA estimates that its revenue opportunity per gigawatt of deployed computing capacity has grown from approximately $18 billion with Hopper to $25 billion with Blackwell and $40 billion with Vera Rubin. This rising revenue potential could support stronger growth as AI infrastructure investments increase.
Another positive is the broadening customer base. Hyperscale revenues jumped 117% year over year to $48.71 billion in the second quarter. Meanwhile, revenues from AI clouds, industrial and enterprise customers (ACIE) surged 138% to $40.31 billion. Amazon Web Services has also announced plans to deploy an additional 2 million NVIDIA GPUs through the second quarter of fiscal 2029, highlighting the long-term demand opportunity among major cloud providers.
NVIDIA's longer-term growth outlook remains impressive. Management expects fiscal 2028 revenues to increase approximately 70%. However, this forecast reflects supply constraints, suggesting that actual demand could be even higher if the company had more capacity available to meet customer requirements.
To support this demand, NVIDIA is making substantial commitments across its supply chain. Supplier commitments increased to $279 billion at the end of the second quarter, largely reflecting memory procurement requirements. The company is also strengthening its AI ecosystem through cloud partnerships, financing initiatives and strategic investments.
Wall Street analysts remain optimistic about NVIDIA's growth prospects. The Zacks Consensus Estimate projects fiscal 2027 and fiscal 2028 revenues to increase 88.7% and 67.5%, respectively, year over year. The consensus estimates for earnings point to growth of 95% in fiscal 2027 and 69.3% in fiscal 2028.
Conclusion: Buy NVDA Stock for Now
NVIDIA's relatively low valuation, despite its strong earnings growth and dominant position in the AI market, makes the stock worth considering at current levels. Its Blackwell and Vera Rubin platforms, expanding customer base and growing AI infrastructure opportunity provide strong support for future growth.
The company's impressive profitability and strong revenue visibility further strengthen the investment case. Although supply constraints, competition and the sustainability of AI spending remain risks, NVIDIA's fundamentals continue to look solid.
Given its attractive valuation relative to the broader technology sector and semiconductor peers, along with its strong earnings outlook, we believe investors should buy NVIDIA stock for now.
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Is NVIDIA's Cheap Valuation an Opportunity to Invest in the Stock?
Key Takeaways
NVIDIA Corporation’s (NVDA - Free Report) stock appears attractively valued compared with the broader technology sector and several major semiconductor competitors. The stock currently trades at a forward 12-month price-to-earnings (P/E) ratio of 14.26, well below the Zacks Computer and Technology sector average of 17.80.
NVIDIA Forward 12-Month P/E Ratio
Image Source: Zacks Investment Research
NVIDIA also looks cheaper than some of its major semiconductor peers, including Intel Corporation (INTC - Free Report) , Marvell Technology, Inc. (MRVL - Free Report) and Advanced Micro Devices, Inc. (AMD - Free Report) . Intel, Marvell Technology and AMD currently trade at forward P/E multiples of 30.33, 26.00 and 33.31, respectively.
The valuation gap largely reflects NVIDIA's relatively weak stock performance this year. NVDA shares have gained just 8.4% year-to-date, significantly underperforming Intel, Marvell Technology and AMD, which have surged 62.6%, 101.7% and 118%, respectively.
NVIDIA YTD Price Return Performance
Image Source: Zacks Investment Research
This underperformance raises an important question: Is NVIDIA's relatively low valuation a buying opportunity, or does it signal concerns about the company's future growth?
We believe the current valuation offers an attractive entry point. NVIDIA remains the leading supplier of graphics processing units (GPUs) used to train and run AI models. Its products are essential to the expansion of AI infrastructure across data centers, cloud computing platforms and enterprises. With companies continuing to invest heavily in AI computing capacity, NVIDIA is well-positioned to benefit.
Its latest financial results show that AI demand remains strong, while its expanding product portfolio and growing customer base provide additional opportunities for revenue growth.
NVIDIA's Q2 Results Highlight the Strength of AI Demand
NVIDIA's second-quarter fiscal 2027 results reinforce the strength of its AI business. Revenues surged 106% year over year and 18% sequentially to $96.22 billion. The Data Center business remained the biggest growth driver, with revenues jumping 117% year over year and 18% sequentially to $89.02 billion.
Demand for NVIDIA's Blackwell platform remains strong, particularly among hyperscalers and other AI infrastructure customers. This demand is translating into impressive financial performance. Non-GAAP gross margin increased to 75% from 72.5% in the prior-year quarter, while non-GAAP operating income climbed 124% to $63.96 billion.
The bottom line was equally impressive. Non-GAAP net income rose 118% year over year to $53.95 billion, while earnings per share (EPS) surged 120% to $2.22.
NVIDIA Corporation Price, Consensus and EPS Surprise
NVIDIA Corporation price-consensus-eps-surprise-chart | NVIDIA Corporation Quote
NVIDIA's third-quarter guidance suggests that this momentum is unlikely to fade anytime soon. Management expects revenues of $108 billion, plus or minus 2%, indicating another strong sequential increase. The company expects non-GAAP gross margin of 74%, plus or minus 50 basis points.
This revenue outlook does not include any Data Center compute revenues from China. This means NVIDIA's near-term growth expectations are not dependent on a recovery in the Chinese market.
The continued adoption of Blackwell and the rollout of its next-generation Vera Rubin platform provide growth support. NVIDIA started production shipments of Vera Rubin in August, and major hyperscalers and AI infrastructure providers have already begun adopting the platform. Management expects Vera Rubin to contribute approximately 20% of Data Center revenues in the third quarter.
NVDA's AI Ecosystem Creates New Revenue Opportunities
NVIDIA's growth opportunity goes well beyond selling GPUs. The company is building a complete AI computing platform that includes central processing units (CPUs), networking products, software and integrated AI factory systems. This strategy allows NVIDIA to capture a larger share of customer spending as companies build and expand their AI infrastructure.
The financial opportunity from each new generation of products is also increasing. NVIDIA estimates that its revenue opportunity per gigawatt of deployed computing capacity has grown from approximately $18 billion with Hopper to $25 billion with Blackwell and $40 billion with Vera Rubin. This rising revenue potential could support stronger growth as AI infrastructure investments increase.
Another positive is the broadening customer base. Hyperscale revenues jumped 117% year over year to $48.71 billion in the second quarter. Meanwhile, revenues from AI clouds, industrial and enterprise customers (ACIE) surged 138% to $40.31 billion. Amazon Web Services has also announced plans to deploy an additional 2 million NVIDIA GPUs through the second quarter of fiscal 2029, highlighting the long-term demand opportunity among major cloud providers.
NVIDIA's longer-term growth outlook remains impressive. Management expects fiscal 2028 revenues to increase approximately 70%. However, this forecast reflects supply constraints, suggesting that actual demand could be even higher if the company had more capacity available to meet customer requirements.
To support this demand, NVIDIA is making substantial commitments across its supply chain. Supplier commitments increased to $279 billion at the end of the second quarter, largely reflecting memory procurement requirements. The company is also strengthening its AI ecosystem through cloud partnerships, financing initiatives and strategic investments.
Wall Street analysts remain optimistic about NVIDIA's growth prospects. The Zacks Consensus Estimate projects fiscal 2027 and fiscal 2028 revenues to increase 88.7% and 67.5%, respectively, year over year. The consensus estimates for earnings point to growth of 95% in fiscal 2027 and 69.3% in fiscal 2028.
Conclusion: Buy NVDA Stock for Now
NVIDIA's relatively low valuation, despite its strong earnings growth and dominant position in the AI market, makes the stock worth considering at current levels. Its Blackwell and Vera Rubin platforms, expanding customer base and growing AI infrastructure opportunity provide strong support for future growth.
The company's impressive profitability and strong revenue visibility further strengthen the investment case. Although supply constraints, competition and the sustainability of AI spending remain risks, NVIDIA's fundamentals continue to look solid.
Given its attractive valuation relative to the broader technology sector and semiconductor peers, along with its strong earnings outlook, we believe investors should buy NVIDIA stock for now.
Currently, NVIDIA carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.