Nvidia stock is not a bubble
Nvidia stock is one of the best-performing stocks of recent years.
NVDA surged 240% in 2023 and another 170% in 2024. And it soared some +2,000% since I first recommended Nvidia in 2018:
And despite some calling Nvidia stock a bubble, it actually looks quite undervalued.
People have been saying Nvidia is an expensive stock for years.
If you look at its PE (price-to-earnings) ratio, it trades at a high value of 49x trailing earnings.
But when you consider Nvidia’s earnings have doubled in the last year, that valuation makes sense. Anyone who runs a business knows how hard it is to double net income in a year. Nvidia is growing like a nimble startup, but at a multibillion-dollar scale.
To understand how undervalued Nvidia stock is at 49 PE, all you have to do is look at this chart:
Source: TrendSpider
The last time Nvidia’s trailing PE ratio was at this level, the stock surged 740% in under two years.
I prefer the forward PE over the trailing PE ratio.
It looks at how much company expects to earn over the next 12 months, instead of looking at the past 12 months.
Again, this indicator shows today’s Nvidia’s valuation is one of the cheapest over the last three years:
Source: Koyfin
The insatiable demand for Nvidia’s GPUs underscores why the stock is still a great buy at today’s prices.
Elon Musk’s xAI recently launched the Colossus supercomputer, boasting 100,000 Nvidia H100 GPUs.
But Musk’s ambitions don’t stop there; he plans to deploy a new GPU supercluster by next summer. It will use 300,000 of Nvidia’s Blackwell B200 GPUs, the ‘world’s most powerful chip’ for AI.
Not to be outdone, Meta Platforms (META) is on the verge of completing its own 100,000 GPU cluster.
Meanwhile, there are the two unnamed tech giants that are planning to invest $125 billion in supercomputers in North Dakota, with one potentially being Microsoft’s (MSFT) rumored $100 billion Stargate supercomputer.
The demand is so high that Musk and Oracle’s (ORCL) Larry Ellison were “begging” Nvidia CEO Jensen Huang for more GPUs.
Goldman Sachs (GS) analysts recently reaffirmed Nvidia’s buy rating, citing strong demand for accelerated computing beyond the traditional hyperscalers like Amazon (AMZN), Microsoft, and Google (GOOG).
As enterprises and even sovereign states begin to invest in AI compute clusters, Nvidia’s customer base is broadening. This diversification is crucial, as it mitigates the risk of over-reliance on a few major clients.
Nvidia’s dominance in the AI chip market remains unparalleled, commanding a 90% share with its H100 GPUs.
While a bunch of big tech companies are developing custom silicon, these efforts do not pose a significant threat to Nvidia’s market position at this time.
The company’s pace of innovation ensures it remains the go-to provider for AI hardware.
Bottom line: Nvidia stock is a buy up to $140 at least.