NVIDIA’s stock price has factored in all negative expectations: this pricing logic is unreasonable
NVIDIA's current stock price trend completely does not match the market's expected revenue growth of 83% this year. Instead, the share price is priced as if all potential risks over the next two years are fully realized. For investors who are willing to invest in the long term, there are opportunities for investment now. Most semiconductor investors chase stocks that are expected to grow the fastest over the next few years. Nvidia’s stock price has risen only 10% so far this year; while its old rival AMD ( ) rose by 142%, memory chip manufacturers Benefiting from the explosion in demand for AI data centers, the growth rate during the year was 213%. The Philadelphia Semiconductor Index rose 71% overall. AMD's forward price-to-earnings ratio is as high as 53 times, while Nvidia's forward price-to-earnings ratio has fallen to its lowest since July 2021, according to S&P Global Market Intelligence data. The company currently trades at less than 17 times forward earnings before interest, taxes, depreciation, and amortization, significantly below its five-year average of 36 times. The logic of being bearish on Nvidia is now very clear. Since OpenAI launched its first chatbot ChatGPT, NVIDIA's AI chip business has exploded, with a large number of competing products entering the market to develop self-developed AI chips: including start-ups such as SambaNova, Cerebras, and Groq (Groq ultimately chose to license its own technology to NVIDIA). At the same time, We developed our own AI chips many years ago, and now we not only sell them externally, but we also lease them to external parties through our cloud business; We also develop our own AI chips and follow up on commercialization. Metaverse (Meta), , OpenAI, and Isobar have all begun to develop their own AI chips. In addition, AMD will launch its first AI server system later this year. This solution highly integrates AI chips and supporting hardware to ensure the stable operation of software and hardware. The product is called Helios and can achieve similar functions to the Grace Blackwell and Vera Rubin AI chip solutions that NVIDIA has sold in recent years. Objectively speaking, Nvidia's revenue volume is already very large. Compared with small and medium-sized manufacturers, it is naturally more difficult to maintain rapid growth. The core logic of being bullish on NVIDIA is that the company's growth potential is far less pessimistic than the stock price reflects. Morningstar analyst Brian Colello said that Nvidia's current stock price is about $212, and market pricing implies that the company's growth will basically stagnate after 2027. He believes a reasonable share price should be close to $280, corresponding to a valuation of about 16 times sales in fiscal 2029 (the fiscal year ends in January of the following year). According to his prediction, Nvidia's revenue and adjusted earnings per share will maintain an annual growth rate of more than 45% before fiscal 2029, continuing its high growth performance in recent years. This valuation is reasonable. "From a two- to three-year perspective, NVIDIA's valuation is very cheap. The core question is: Two years later, can large cloud vendors and corporate capital expenditures still maintain high growth? Can NVIDIA maintain the vast majority of its market share? Our judgment is affirmative, which is why the stock price is undervalued." Colello said. Analysts predict that Nvidia’s revenue in fiscal 2028 (ending in January of the following year) will increase by 42% to $560 billion; revenue in the next fiscal year will continue to rise by 23%. AMD's expected growth isn't significantly higher. AMD's revenue grew 34% last year, recording $34.6 billion; institutions estimate its revenue will grow 57% to $78 billion in the fiscal year ending in December 2027, and grow 36% the next year. This growth rate is not enough to support AMD to enjoy a substantial valuation premium. Even so, investors no longer view Nvidia as a growth stock. John Belton, portfolio manager of Gabelli Fund, said that semiconductor funds are flocking to track targets with the most prominent supply and demand gaps and a large amount of unrealized growth space. "Nvidia currently does not conform to this type of investment logic." Belton continues to increase his positions in AMD and Micron, while his Nvidia position remains unchanged, but has not continued to increase his holdings in recent months. "AMD has stronger gaming attributes." He said that AMD-related products are still in the early stages of development, and if the technical route is successfully implemented, the stock price will have greater upside potential.
But the market may have underestimated the barriers that Nvidia has accumulated over the years by cultivating AI chips. Once technology companies such as OpenAI reduce AI capital expenditures, a large number of manufacturers that have entered the industry halfway are likely to abandon self-research and return to the route of purchasing Nvidia chips. To put it simply, if the AI industry encounters a cold spell, Nvidia is likely to be less impacted than new chip players - the latter's products have not yet been verified in a full cycle. Despite the many risks, NVIDIA still firmly occupies the dominant position in AI chips. "The Information" recently reported that in the field of AI inference chips (used for model implementation, different from training chips), Nvidia's market share has increased instead of falling. At this stage, the industry's trend of aggressively increasing the research and development of new chips shows no signs of slowing down. Google parent Alphabet on Wednesday raised its capital expenditure forecast for 2026 and plans to continue to expand capital investment next year. In addition, NVIDIA's strategy of investing in potential customers (including emerging cloud vendors Nebius and CoreWeave) has been questioned recently. However, once the industry goes down, this layout can effectively hedge business risks.
But the market may have underestimated the barriers that Nvidia has accumulated over the years by cultivating AI chips. Once technology companies such as OpenAI reduce AI capital expenditures, a large number of manufacturers that have entered the industry halfway are likely to abandon self-research and return to the route of purchasing Nvidia chips. To put it simply, if the AI industry encounters a cold spell, Nvidia is likely to be less impacted than new chip players - the latter's products have not yet been verified in a full cycle. Despite the many risks, NVIDIA still firmly occupies the dominant position in AI chips. "The Information" recently reported that in the field of AI inference chips (used for model implementation, different from training chips), Nvidia's market share has increased instead of falling. At this stage, the industry's trend of aggressively increasing the research and development of new chips shows no signs of slowing down. Google parent Alphabet on Wednesday raised its capital expenditure forecast for 2026 and plans to continue to expand capital investment next year. In addition, NVIDIA's strategy of investing in potential customers (including emerging cloud vendors Nebius and CoreWeave) has been questioned recently. However, once the industry goes down, this layout can effectively hedge business risks.