Nvidia (NVDA) stock has surged over the past 12 months but has slumped over the past 30 days. It’s incredibly volatile for a company that recently tipped a $3 trillion market cap. However, it’s also worth noting that Nvidia, according to some metrics, is the cheapest it’s been for a long time, creating a potential entry point for shrewd investors. That’s why I am bullish on NVDA stock despite some negative murmurs about it.
Nvidia’s Growth Adjusted Valuation
Let’s start with Nvidia’s valuation, which may, at first glance, look pricey, but when we dive into the numbers, we get a different perspective, and the bullish sentiment feels much more in place. Many value-focused investors will be put off by Nvidia’s headline metrics. The stock currently trades at 37.5x forward earnings and 48.2x earnings from the past 12 months. This is 78.1% above the semiconductor sector’s median price-to-earnings multiple of 23.11x.
However, despite being one of the biggest companies in the world by market cap, Nvidia is still a growth-oriented investment. This year, the company is expected to deliver 88.7% revenue growth and 170.2% EBITDA growth. Looking further ahead, earnings per share (EPS) are expected to grow at a CAGR of 36.6% over the medium term and the next three to five years.
NVDA’s PEG Ratio
This growth rate and the current forward earnings ratio give us a price-to-earnings-to-growth (PEG) ratio of 1.02. Traditionally, a PEG ratio under one indicates undervalued conditions, but there are certainly exceptions to this rule. Companies in the tech space with a strong long-term growth trajectory will likely demand a higher PEG ratio than one. And interestingly, Nvidia is the cheapest of the Magnificent Seven stocks.
Nvidia’s PEG ratio over the trailing twelve months of 0.13 is below the sector median of 0.81. In fact, it’s probably the cheapest I’ve seen since I bought the stock myself around a year ago.
The reasons behind this falling PEG ratio are simple. The stock price has dropped significantly from its highs while analysts continue to revise their earnings forecasts positively. Over the past 90 days, there have been 33 positive and seven negative revisions. Collectively, these factors all point towards strong buying conditions.
Nvidia’s Antitrust Issue
However, things aren’t all rosy, and a potential hit to the bullish sentiment might occur due to the increased scrutiny from the U.S. Department of Justice (DOJ), which is escalating its antitrust investigation into the company’s business practices.
The probe began earlier this year and intensified with reports of subpoenas being issued to Nvidia and other related firms. However, Nvidia has denied receiving a subpoena, stating that it “wins on merit” and provides value to customers who can choose their preferred solutions. According to more recent reports, the DOJ has contacted Nvidia to inquire about its contacts and partnerships.
Does NVDA Have Too Much Market Power?
Senator Elizabeth Warren is among those who recently supported the DOJ’s investigation, expressing concerns about Nvidia’s growing influence in AI development. In a letter to Assistant Attorney General Jonathan Kanter, Warren warned that allowing a single company to have such significant control over AI research, development, and monetization poses substantial economic risks.
Warren isn’t the first person to publicly criticize Nvidia’s business practices. Some critics have argued that Nvidia’s market power may be starving startups and academic researchers of necessary resources. The antitrust investigation doesn’t appear to have worried investors, but it could represent a near-term concern for shareholders should unfavorable evidence emerge.
Nvidia’s Volatility
So, with this in mind, is Nvidia stock worth the risk? The stock is volatile amid constantly shifting forecasts for artificial intelligence (AI) and data centers. As such, it’s very possible that investors could see further downward movement in the share price before sentiment improves once again. However, as an Nvidia investor myself, I’m quite comfortable leaving this one for the long run.
Is Nvidia a Buy According to Analysts?
On TipRanks, NVDA is a Strong Buy based on 39 Buys, four Holds, and 0 Sell ratings assigned by analysts in the past three months. The average Nvidia stock price target is $153.24, implying a 31.08% upside potential.
The Bottom Line on Nvidia Stock
Nvidia stock currently trades at a 43.6% discount to its average share price target and has a PEG ratio that is substantially lower than its big tech peers. Moreover, earnings revisions remain positive, and broader economic conditions support the company’s growth. Although the DOJ’s investigation may cause some negative sentiment toward the stock, all the metrics point to buying conditions and suggest near-term pressures are related to ever-shifting sentiment rather than fundamental issues facing the company.
