Shares of Nvidia saw a surge after their recent split.
It’s been a wild ride for Nvidia (NVDA -6.68%) investors. Shares are up 190% since this time last year as the company has positioned itself brilliantly as the dominant provider of chips for the artificial intelligence (AI) market. Big tech players like Amazon, MicrosoftAND Alphabet all are turning to Nvidia’s technology to power their AI offerings.
The skyrocketing share price led to Nvidia’s 10-for-1 stock split, which it executed earlier this month. The move lowered the entry barrier for investors, opening the door to smaller investors and a larger portion of the retail market.
Since the split announcement, the stock is up 33%, despite the fact that shares have retreated from their highs over the past week. After one of the most incredible swings in stock market history, is Nvidia still a buy?
Nvidia seems overrated at first glance
One of the most common ways to value a company is its price-to-earnings (P/E) ratio. Nvidia boasts a P/E multiple of 70 as of this writing. Contrast this with the two tech giants currently battling it out for the title of world’s largest company by market capitalization, Microsoft and Applewhich have P/E ratios of 39 and 33 respectively.
Nvidia looks overvalued from this perspective, but here’s the thing: the P/E ratio isn’t the best metric when valuing a company in hyper-growth mode. Despite Nvidia’s already massive size, it’s still growing at a triple-digit rate.
The price/earnings to growth (PEG) ratio can take this growth into account, and traditionally, a PEG ratio of less than 1 is considered undervalued.
Data from YCharts.
Of this trio, Nvidia is the only stock with a PEG ratio below 1, meaning its current valuation is much more reasonable than the P/E alone would indicate. However, keep in mind that no single metric will give you a complete picture. The PEG ratio relies on growth projections, which are by no means guaranteed.
So are analysts’ growth forecasts reasonable?
The bar is high for Nvidia, but there’s plenty of reason to believe it can deliver
The company has already shown that it can grow rapidly and grow revenue at a dazzling pace. So while Wall Street expectations are high, Nvidia’s own guidance set its fiscal second quarter 2025 revenue target at $28 billion. That’s an 8% increase from last quarter and a 107% year-over-year increase. Most companies would kill to see those kinds of numbers.
These results are only possible because the demand for Nvidia’s chips is still incredibly high and the company has yet to encounter real competition.
Other companies, such as AMD, are developing chips to chip away at Nvidia’s market share, but for now, they have a lot of work to do. Nvidia has been one step ahead and is promising a development cycle that AMD will struggle to keep up for several reasons, not least of which is that it spends nearly twice as much as AMD on research and development.
The broader demand for AI that is driving Nvidia’s success doesn’t seem to be slowing down as PwC believes that AI could add $15.7 trillion to the global economy by 2030. That means there’s a long way to go before demand catches up. fall, and Nvidia stock still has room to run if it can defend its market share.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 Microsoft calls and short January 2026 $405 Microsoft calls. The Motley Fool has a disclosure policy.
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