Is NVIDIA stock really still cheap, even though it’s up more than 180% year-to-date and more than 2,650% over the past five years?
Nvidia (NVDA 1.99%) has been the most influential stock of the year, posting huge gains in the process. The artificial intelligence (AI) leader’s sales and earnings continue to grow at an impressive pace, and its stock is up nearly 180% so far this year.
This is just the latest step in an incredible run that has seen the company’s stock price rise nearly 860% since the beginning of 2023 and more than 2,650% over the past five years. Thanks to these explosive profits, the company’s price-to-earnings ratio has ballooned to 66 times as of this writing.
With a valuation like this comes with high expectations for growth, it’s understandable to worry that the semiconductor company’s stock price has risen too fast. But there’s another valuation metric that suggests there’s still upside potential for hot AI stocks.
Nvidia has the growth potential to back up its reputation
Given Nvidia’s recent performance, the stock’s rise doesn’t seem overdone. For example, revenue through the first half of fiscal 2025 (six months ended July 28, 2024) increased 205% year over year, and earnings per share increased 285% over the same period.
With expectations for continued impressive growth, NVIDIA is trading at a forward price-to-earnings ratio (PEG) of approximately 0.36. A PEG ratio of less than 1.0 is often taken as a signal that the stock is undervalued due to its high expected earnings growth compared to its earnings-based valuation.
Data by YCharts.
There’s no doubt that Nvidia’s revenue and earnings growth will eventually have to slow, but the company’s leadership position, momentum, and PEG ratio suggest the stock still has room to survive. . With the next generation of Blackwell processors expected to launch later this year, the company could see another big sales and earnings boost soon.
Spending on GPUs to power AI applications will undoubtedly go through cyclical shifts, but the rise of artificial intelligence is still in its infancy, and Nvidia remains essential to its rise.
Keith Noonan has no position in any stocks mentioned. The Motley Fool has a position in and recommends Nvidia. The Motley Fool has a disclosure policy.
