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Nvidia (NASDAQ:NVDA) stock has skyrocketed, propelling the company to a $3.9trn market cap and making it the most valuable semiconductor business in history. With a forward price-to-earnings (P/E) ratio of 37 and a price-to-sales (P/S) multiple above 19, many investors might assume the stock is simply too expensive.
However, a deeper dive into the numbers and Nvidia’s unique strategic position suggests the shares could still be cheap relative to its growth prospects and the scale of the opportunity ahead.
Growth-adjusted metrics
The key to understanding Nvidia’s valuation lies in its P/E-to-growth (PEG) ratio, which compares price to earnings growth.
On a forward basis, Nvidia’s PEG stands at just 1.29. That’s significantly lower than the sector median of 1.90 and below its own five-year average. This is remarkable given the company’s size and maturity.
Traditional hardware companies in the information technology sector often trade at lower multiples, but Nvidia is not just a chipmaker. Its CUDA software platform, AI developer tools, and ecosystem partnerships have created a powerful moat that delivers recurring software revenues and high switching costs.
The future
Nvidia’s role in the AI revolution is central and expanding. The company’s GPUs and networking solutions are the backbone of generative AI. It powers everything from large language models like ChatGPT to cutting-edge image and video synthesis.
However, Nvidia’s ambitions go further. CEO Jensen Huang has repeatedly emphasised the company’s vision for “agentic AI” — systems that can reason, plan, and act autonomously — and “physical AI,” where intelligent machines interact with the real world.
Nvidia’s platforms are already being used to train and deploy autonomous robots, vehicles, and industrial systems, positioning it as a foundational player in the next wave of AI-driven innovation.
The scale of Nvidia’s growth continues to surpass the sector average. Consensus forecasts suggest earnings per share will jump 43% in fiscal 2026 and another 34% in 2027. This growth is reflected in the company’s cash generation and fortress balance sheet. It has over $53bn in cash and minimal net debt.
The bottom line
Of course, risks exist. The AI hardware market is intensely competitive, with rivals like AMD and custom silicon from cloud giants seeking to erode Nvidia’s dominance. Regulatory scrutiny, especially around export controls and antitrust, could also impact growth.
Yet, Nvidia’s unique blend of hardware leadership, software ecosystem, and exposure to generative, agentic, and physical AI gives it an economic moat that few can match. What’s more, the valuation really isn’t too demanding. And there’s certainly reason to think the stock could track higher based on relative valuations in the sector — namely the PEG ratio.
Personally, I topped up on my Nvidia shares in the last quarter. Even at the current price, I’m tempted to buy more. However, Nvidia is already among my largest holdings so I’ll have to think hard about this. It’s certainly worthy of further consideration.
