We asked about one of the biggest mysteries surrounding Nvidia's (NVDA) stock in the Morning Brief newsletter, and you responded with insightful analysis.
Why does the stock still look so cheap on a forward price-to-earnings (P/E) multiple basis?
Nvidia isn't some struggling also-ran tech company like Intel (INTC) — it's an artificial intelligence juggernaut that is dominating its industry. And it has a strong double-digit percentage earnings growth outlook for 2025, 2026, and beyond to show for it.
On a forward price-to-earnings multiple basis, Yahoo Finance data shows Nvidia trading at 31 times. Broadcom (AVGO) and Marvell Technology (MRVL) are valued at 35 times and 41 times, respectively. Arm Holdings (ARM) clocks in at 72 times.
"It's become the proverbial canary in the coal mine," one Yahoo Finance reader emailed me on Monday morning, pointing to economic risks ahead, such as tariffs impacting corporate profits. "In short, many of the high P/E, stratospheric valuation companies, already priced-for-perfection ... and beyond! (such as Palantir) will plummet back to Earth in a swath similar to Skylab junk over Western Australia in a rotation stampede back to defensive value," the reader added.
I suspect this valuation disparity may be more easily explained seconds after Nvidia earnings hit on Feb. 26 after the market close.
The Yahoo Finance team will aim to put Nvidia's earnings and outlook in the context of its valuation, similar to the approach of longtime Nvidia investor Louis Navellier.
Listen: Why Nvidia may be unstoppable
We are having a live Nvidia earnings special on Feb. 26, starting at 4 p.m. ET and running until 6 p.m. ET. The next day, we will have a live episode of the Opening Bid podcast with a great roundtable of Nvidia pros. You can tune in on the new Streaming Now section on the Yahoo Finance homepage, our app, or major streaming platforms.
In the meantime, here are some of the responses about Nvidia's valuation you sent me on X.
Hi Brian, IMHO the reason the market isn't pricing Nvidia stock correctly is simply because there are too many shares in the float. You can fit nearly three Meta companies into the float alone. The supply and demand forces in the market for this stock are out of whack. 1 of 2
— MIJACology (@MIJACology) February 24, 2025
2 of 2. The last stock split was simply too large. Apple is nearly the same market cap and has 10 billion less shares. Meta is half the market cap of Nvidia and has about 10 times less shares.
— MIJACology (@MIJACology) February 24, 2025
It's the law of large numbers. NVDA's growth has been beyond impressive, but can annual profits compound reliably when they surpass $100bn? Can already huge margins expand, or are they more likely to erode somehow? If market cap hits $4 trillion, what do you do for an encore?
— Dan P (@dcpXn) February 23, 2025
Commonsense. Nvidia chips consumes an unrealistic amount of energy. Perhaps another company can show how to solve the thirst for electricity without putting all your apples in one basket. Technology changes all the time!
— Kerry J Baidin (@Kerryjeang97816) February 23, 2025
Consider that traders want "instant gratification". Thus they look at the numbers, and not at the fundamentals.
— Bob (@BobdennisBob) February 23, 2025
Now consider NVDA owns a certain amount of AI chip design IP. And it's only a matter of time for neural chip size shrinking to "smartphone size".
A savvy investor…
Market still didn't understand what Nvidia did
— David Noam (@DavidNoam16) February 23, 2025
Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.
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