Is Nvidia (NASDAQ:NVDA) stock overvalued? not enough

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By journalsofus.com


nvidia (NASDAQ:NVDA) has been one of the best performing stocks globally in the last 18 months. The chip maker’s shares have increased nearly 7 times during this period. This extraordinary growth could certainly dissuade some investors, leading them to believe that it is overvalued. However, it’s worth remembering that momentum can actually be one of the best indicators of forward stock performance, especially if the company has a track record of beating expectations.

Personally, I’m bullish on NVDA stock, not just because of the momentum but because the company is at the center of an AI revolution that has just begun.

AI Kingpin

Nvidia, as a company, is at the center of the AI ​​revolution because of its graphics processing units (GPUs), which have the capabilities needed for massive AI and large language models. The units were originally created for the gaming sector, but GPUs are also perfect for the huge data processing needs of AI.

Unlike central processing units (CPUs), which handle tasks one by one, GPUs excel at parallel processing, allowing them to perform multiple tasks simultaneously. Without this technology, the steps forward we have seen in AI, including facial recognition technology and the development of self-driving cars, would not be possible.

Nvidia’s dominance stems from the architecture of its GPUs. Unlike CPUs with few cores, Nvidia packs a large number of cores on a single chip. In turn, this allows higher processing power within a smaller space, and this is extremely important for efficient AI processing. Additionally, Nvidia has focused on high-bandwidth memory, which allows these cores to access data faster, further accelerating AI calculations. Thus, Nvidia has gained a significant lead in the AI ​​hardware race.

However, in the AI ​​world, it’s not just about the hardware. Nvidia’s CUDA software provides direct access to the GPU’s virtual instructions. This software ecosystem empowers developers to create and refine AI projects and has made Nvidia a one-stop shop for all things AI.

Is Nvidia really not that expensive?

Nvidia stock is expensive because it is becoming less affordable for many investors. Trading at around $900 per share, some investors may struggle to purchase an Nvidia share as part of a diversified portfolio of holdings. However, from a valuation perspective, I don’t think Nvidia stock is expensive or overvalued. In fact, it may still represent good value.

Nvidia currently trades at 35.4x forward earnings, making it more expensive than the S&P 500 (SPX), but for the technical sector it is by no means very expensive. Furthermore, the company is expected to continue strong growth in the medium term. In fact, Nvidia’s earnings are projected to grow 34.78% annually over the medium term.

This means that Nvidia’s most significant PEG ratio is 1.02. While 1.0 could be considered a benchmark for fair value, I still think it represents good value, given the long-term trends in the AI ​​industry and the market’s bullishness on the US technology.

In turn, this means that Nvidia is trading at 29.77x earnings for 2026, 25.26x earnings for 2027, and 21.49x earnings for 2028. Furthermore, it is worth recognizing that Nvidia continues to beat analysts’ most bullish forecasts. This is always a good sign, and may it continue to live up to expectations going forward.

According to analysts, is NVDA stock worth buying?

Due to its enabling position in the AI ​​revolution and attractive valuation metrics, Nvidia stock earns a Strong Buy from analysts. Currently, Nvidia has 39 Buys, two Hold ratings, and zero Sell ratings. Nvidia stock has an average target price of $913.74, which implies a 1.1% upside potential. The highest share price target is $1,200, and the lowest share price target is $608.40.

Bottom-line

Nvidia has been at the center of the AI ​​revolution, but there are two important things to consider moving forward: Nvidia’s competitive advantage in the all-important generative AI market and the fact that the AI ​​revolution has just begun.

Over the past 18 months, Nvidia has found itself in a terrible hole, which it has successfully created. Other companies including Intel (Nasdaq: INTC), Nvidia has its eyes on the crown, but it’s unclear how they’ll capture it. The Santa Clara-based firm’s new H200 chipset is essential for generative AI and large language models. H200 is said to be 1.4 to 1.9 times faster than H100 when it comes to large language model inference. That’s an impressive jump in just one year.

Furthermore, the market is growing and has the potential to grow very rapidly. SoftBank (OTC: SFTBY) Masayoshi Sun is considering a $100 billion venture in the AI ​​chip sector, and OpenAI’s Sam Altman is reportedly looking at $7 trillion for a chain of AI chip factories that will respond to growing demand and the world. Will restructure the semiconductor sector.

Given the near-term momentum in this area, the fact that demand for GPUs still exceeds supply, and the fact that we’re really at the beginning of the AI ​​revolution, I’m bullish on Nvidia.

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