Nvidia’s Stock Valuation: A Magnificent Opportunity or an Overstatement?
For a long time, most investors wouldn’t have labeled Nvidia (NASDAQ: NVDA) as “cheap.” Even now, some experts, like NYU finance professor Aswath Damodaran, known as the “Dean of Valuation,” argue that Nvidia is still overvalued by about 23%. Nonetheless, it currently ranks as the second-cheapest among the “Magnificent Seven” stocks based on a key valuation metric. So, is Nvidia a compelling buy?
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Nvidia’s Valuation Reassessed
When looking solely at Nvidia’s trailing 12-month price-to-earnings (P/E) ratio of 35.5, the stock appears expensive. Its trailing P/E is the second-highest among the Magnificent Seven, just behind Tesla, which has a notably high P/E of 118.4.
Examining the forward P/E ratio does make Nvidia’s valuation more reasonable. The stock trades at about 23.3 times projected earnings, placing it behind only Google parent Alphabet and Facebook parent Meta Platforms in terms of lower forward earnings multiples within this group.
Going even further, Nvidia’s price-to-earnings-to-growth (PEG) ratio stands at a low 1.02. This statistic indicates growth potential relative to its earnings, positioning Nvidia close to Meta, which has a slightly lower PEG of 1.01.
Reasons Behind Nvidia’s Low PEG Ratio
The drastic drop in Nvidia’s share price contributes significantly to its low PEG ratio. Currently, Nvidia’s stock reflects a decline of over 30% from its peak earlier in 2025, driven by a combination of factors.
In January, the debut of a powerful, low-cost large language model by Chinese AI firm DeepSeek sparked worries about demand for Nvidia’s premium GPUs. Additionally, tariffs imposed by former President Trump led to a significant sell-off in tech stocks, causing heavy losses for Nvidia. Recently, the U.S. restrictions on exporting Nvidia’s H20 AI chips to China put the company at a disadvantage, impacting it by roughly $5.5 billion.
Despite these challenges, the low PEG ratio also arises from strong earnings growth expectations. Many Wall Street analysts maintain confidence that Nvidia will continue to achieve impressive earnings growth despite emerging competition and the implications of trade policies.
Nvidia’s key customers, many of whom belong to the Magnificent Seven, are still making substantial investments in AI, ensuring that Nvidia’s chips remain the leading choice for powering advanced AI models—especially with the launch of its new Blackwell platform.
Furthermore, Nvidia isn’t solely reliant on AI for growth. CEO Jensen Huang points out that transitioning from general-purpose computing to accelerated computing presents a potential $1 trillion opportunity for the company.
Should You Buy Nvidia Stock Now?
With Nvidia’s PEG ratio being one of the lowest in the Magnificent Seven stocks, should you consider it an obvious buy? The answer requires careful thought.
As prominent valuation expert Damodaran advises that Nvidia may decrease further, caution is warranted. Wall Street’s earnings projections for the next five years might be overly optimistic. The uncertainties linked to recession fears stemming from trade policies also complicate the investment landscape for Nvidia.
Nonetheless, Nvidia could be a worthwhile investment even if it isn’t a clear-cut choice. I believe that the demand for AI is unlikely to wane. Although competitors will create new AI chips, they are unlikely to surpass Nvidia’s GPUs in the near term. The company will likely continue unveiling more powerful chips in the future.
If you’re a long-term investor, the recent sell-off in Nvidia’s stock could represent a favorable buying opportunity. This AI leader could very well be one of the top choices among the Magnificent Seven stocks right now.
Is Nvidia Worth a $1,000 Investment Today?
Before purchasing Nvidia stock, consider the following:
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Suzanne Frey, an executive at Alphabet, serves on The Motley Fool’s board of directors. Randi Zuckerberg, a former Facebook marketing director and sister to Meta CEO Mark Zuckerberg, is also a director at The Motley Fool. Keith Speights holds positions in Alphabet and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, Nvidia, and Tesla. For further details, please refer to the Motley Fool’s disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
