Nvidia (NVDA 3.98%) It hasn’t been on sale for many years. The stock has fallen several times, but these have all been strong buying opportunities.
The stock has recently fallen about 10% from its all-time high, which some may see as a buying opportunity. But Nvidia has performed so well over the past few years that other investors are concerned that the company may be reaching its zenith.
So, which of these two camps is right? I think the recent decline is a buying opportunity. But even if stocks hit all-time highs tomorrow, buying stocks would still be a good decision.
Nvidia’s growth story isn’t over yet
Nvidia is one of the biggest beneficiaries of the artificial intelligence (AI) race. The company’s graphics processing units (GPUs) are best-in-class and essential to creating these powerful AI models.
GPUs are well-suited for these complex computing tasks because they can process multiple calculations in parallel. You can also double this power by connecting to a cluster to handle your most difficult computing tasks at unrealistic speeds.
GPUs are not only suitable for processing AI models. It can also be deployed to process engineering simulations, develop new drugs, mine cryptocurrencies, and process graphics on computers (its original use). However, the biggest use case for this hardware so far is AI, and Nvidia will see where that goes.
Its revenue has skyrocketed in recent years, but all signs point to it continuing to grow through fiscal 2026 (ending January 2026). Many of the AI hyperscalers, the companies that are spending huge sums of money to win the AI race, have indicated that their spending will increase from 2024 levels, and Nvidia stands to benefit.
Upstream, the company’s chipmaker Taiwan Semiconductor Manufacturing Co. is pointing toward strong revenue growth and increased capital spending to meet demand for chips for high-performance computing hardware such as Nvidia’s GPUs. I did.
What’s more, Wall Street analysts predict that NVIDIA’s revenue will increase 52% in fiscal year 2026. This is incredible growth, with total annual revenue reaching nearly $200 billion, compared to the current trailing 12-month total of $113 billion.
This growth story is far from over, and there is no indication that the company’s products have fully penetrated the market. Still, if a stock isn’t priced properly, there may not be much room for further upside.
Given the growth, the stock has a reasonable price tag.
Nvidia is a fully mature company, so the best way to assess stock valuation is to look at earnings. From a trailing earnings perspective, this stock isn’t the cheapest at 54 times trailing earnings.
NVDA PE Ratio, data by YCharts. PE = price to profit.
However, using earnings growth may be a flawed metric, given the strong growth expected over the coming year. If we evaluate the stock price based on FY2026 profits, the P/E ratio would be 31x. This is in line with how many other large technology companies are trading, so NVIDIA is actually not overvalued at the moment and is pretty much in line with its peers.
This gives investors the confidence to buy now, even if the stock returns to all-time highs.
The AI trend is far from over, and Nvidia is expected to benefit from increased spending. While the stock has performed exceptionally well over the past few years, it still has room to rise, and I expect it to still outperform the market in the coming years.
Keithen Drury has held positions at Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
