Nvidia Appears Undervalued Despite Its Earnings Signaling Strong Growth

Nvidia’s Surging Growth Meets Investor Skepticism

Photographer: SeongJoon Cho/Bloomberg

Nvidia Corp. recently delivered impressive quarterly results, reinforcing its reputation as one of the market’s fastest-growing companies. Yet, despite this strong performance, the stock is trading at valuations more typical of value stocks than high-growth tech leaders.

On Thursday, Nvidia’s shares dropped by 5.5%—their steepest decline since mid-April—pulling the S&P 500 Index lower as well. The company’s forward price-to-earnings ratio now sits around 22, a significant discount from its five-year average of 37 and only slightly above the S&P 500’s overall multiple. As analysts update their forecasts in response to Nvidia’s robust revenue guidance of $78 billion for the upcoming quarter—well ahead of Wall Street’s previous $73 billion estimate—this valuation is expected to decrease further.

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“There’s a clear gap between Nvidia’s stellar results and the market’s reaction,” observed Robert Pavlik, a senior portfolio manager at Dakota Wealth Management and Nvidia shareholder. “Given these numbers, you’d expect the stock to perform better. The company’s growth is undeniable.”

Currently, Nvidia is valued lower than about one-third of S&P 500 companies, even though its 65% revenue growth over the past year is the third highest in the index, according to Bloomberg data. For context, Palantir Technologies ranks just behind Nvidia in revenue growth but trades at a much higher forward earnings multiple—around 98 times.

So why the disconnect? Investors are shifting their focus away from Nvidia’s financials and toward broader concerns. There’s growing anxiety that major AI players like Meta, Alphabet, Microsoft, and Amazon may need to scale back their massive spending plans, which could significantly impact Nvidia’s future sales.

“The selloff is really about the market questioning whether we’ve reached the peak,” explained Daniel Pilling, portfolio manager at Sands Capital Management, another Nvidia investor. “That uncertainty is reflected in the stock’s valuation.”

Even before Nvidia’s earnings release, the market was uneasy about AI-related investments. Worries about the returns on heavy capital expenditures and potential disruptions from new technologies had already pressured software and tech stocks.

Market Outlook and Analyst Perspectives

“Nvidia was in a tough spot—no matter what results it posted, it was unlikely to satisfy expectations,” said Paul Nolte, market strategist at Murphy & Sylvest Wealth Management. “The real question is when we’ll see tangible profits from all the capital spending.”

Another issue is whether Nvidia’s meteoric rise—nearly 1,000% since ChatGPT’s debut in late 2022—leaves much room for further gains. “Who’s left to buy? Most major funds have already maxed out their positions,” noted Jay Goldberg, senior analyst at Seaport Group, who maintains a rare sell rating on Nvidia. “Even if the stock appears cheap, there aren’t many buyers left to push it higher.”

Despite these concerns, many on Wall Street remain optimistic. Nvidia’s shares are trading at one of their lowest valuations since last April’s market turbulence, and some investors see this as an opportunity. As money shifts out of Big Tech and into less volatile sectors, Nvidia’s stock has been range-bound.

“Nvidia now looks like a value play,” said Tejas Dessai, research analyst at Global X. “The stock’s underperformance is more about market positioning and rotation than any real weakness in demand.”

This blend of strong growth and attractive valuation suggests Nvidia could be a classic “growth at a reasonable price” (GARP) candidate. “The fundamentals, the valuation, the metrics—all point to Nvidia being a compelling addition to any portfolio,” said Dakota’s Pavlik.

Still, some hesitate to label Nvidia a value stock. “It doesn’t behave like a typical value stock—it’s much more volatile,” commented Sands Capital’s Pilling.

Tech Sector Trends

According to Bloomberg data, a US software sector ETF is on track to outperform the Philadelphia Semiconductor Index for the first time since mid-December. Software stocks rebounded Thursday as investors rotated away from Nvidia and AI infrastructure providers. Earlier in the week, Anthropic announced a series of partnerships with software and data service firms, helping lift the sector.

Latest Technology Headlines

• Netflix has exited the bidding for Warner Bros. Discovery, clearing the path for Paramount Skydance to secure a $111 billion deal for the iconic studio.
• Block, led by Jack Dorsey, is laying off 4,000 employees—nearly half its workforce—as it bets on AI to reshape labor productivity.
• Anthropic PBC has rejected the Pentagon’s latest offer regarding the use of its AI technology, escalating a standoff just before a government deadline.
• Dell Technologies’ shares surged after the company projected stronger-than-expected sales for its AI servers, signaling robust demand for AI data center infrastructure.
• CoreWeave’s shares fell sharply after reporting larger-than-anticipated losses and increased capital spending, raising concerns about overspending.
• Nvidia dramatically increased its investments in partners and customers last year, deploying over $70 billion to maintain its leadership in AI chips.

Upcoming Earnings

• No significant earnings reports are expected on Friday.

With contributions from Subrat Patnaik, David Watkins, and Henry Ren.

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