Nvidia’s wall of worry
The stock’s price-earnings multiple has fallen dramatically, which suggests investors aren’t convinced that the company can keep delivering blockbuster results. Even with AI stocks roaring again this week, as we noted yesterday, plenty of worries remain.
At less than 17 times expected earnings, the stock’s valuation is half what it was in 2025. Back in 2023, it traded at a multiple above 50.
“The stock has de-rated pretty significantly, which suggests a healthy dose of skepticism that the company’s current earnings power is sustainable,” said Eli Horton at fund manager at TCW.
The disconnect between Nvidia’s strong fundamentals and its stock valuation prompted CEO Jensen Huang to declare that Nvidia is “the world’s first and only growth value stock.”
The reason Nvidia’s valuation has fallen so much is that the stock price isn’t keeping up with expectations for earnings growth. The fact that the market isn’t willing to pay up for that profit is a sign of skepticism.
Analysts expect Nvidia earnings to double this year. But there are concerns that profitability is under pressure because of competition and rising chip costs.
On the flip side, the bull case is that Nvidia’s is undemanding for investors wanting to bet on the AI rollout.
“I like the way the probabilities are stacked up,” said TCW’s Horton. “If the question is whether the multiple will work in your favor by re-rating higher, or work against you, I’d definitely take the former. This seems like a very favorable multiple to have as an entry point.” —Ryan Vlastelica