nvidia’s (NASDAQ: NVDA) The fourth quarter 2025 (ends January 26, 2025) revenue report shook the market last week, selling on a major index on Thursday, followed by a rebound on Friday.
As of March 2, Nvidia had a 7% decline in annual performance, decreasing the S&P 500 index (snpindex: ^gspc) 1.2% gain. Given that Nvidia has grown by over 800% between 2023 and the end of 2024, investors may feel that pullbacks in growth stocks are just natural. However, there are many reasons why Nvidia is surprisingly cheaper than the stock chart suggests.
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Nvidia’s rating has declined
The price to revenue (P/E) ratio is a well-known financial indicator that divides the price of a stock by earnings per share (EPS). The P/E ratio indicates that multiple investors are paying the company relative to their revenue. The higher the P/E ratio, the higher the stock price based on subsequent revenues.
The P/E ratio is useful when analyzing consistent business models and range growth rates, particularly those with blue chip companies such as Apple, Microsoft, Home Depot, and Coca-Cola, but metrics can be a bit useful for companies that are not yet profitable, beneficial, or undergoing major conversions.
Nvidia’s stock price has risen sharply in recent years, as well as revenue. The company is growing so fast that its ratings have actually been cheaper. This is especially true over the past nine months or so as Nvidia’s stock price remains roughly the same and revenues continue to rise.
Nvidia’s P/E ratio has decreased to 42.5. Considering the S&P 500’s P/E ratio is 29.8, this may seem high. However, Nvidia is still increasing revenues rapidly, so its forward P/E ratio is only 27.8 based on analyst consensus estimates over the next 12 months. That is, if Nvidia’s stock price does not move for a year, it receives a roughly identical rating as the S&P 500.
Explosive growth
Nvidia relies heavily on selling graphics processing units (GPUs) on hyperscalers such as Amazon, Microsoft, Alphabet and Meta platforms. This recent development has led to exponential growth in NVIDIA’s sales, operating profit and profit margins.
As you can see in the table below, Nvidia’s revenue has increased nearly eightfold over five years, while operating profit has increased 18fold.
metric
Finance 2021
Finance 2022
Finance 2023
Finance 2024
Finance 2025
Revenue (billions)
$16.7
$26.9
$27
$60.9
$130.5
Operating profit (billions)
$4.5
$10
$5.6
$33
$81.5
Net profit (billions)
$4.3
$9.8
$4.4
$29.8
$72.9
Profit ratio
26%
36.2%
16.2%
48.9%
55.9%
Diluted EPS
$0.17
$0.39
$0.17
$1.19
$2.94
Data Source: nvidia, ycharts.
In 2025, Nvidia converted more than 55 cents of revenue into net profit.
Virtually any stock is cheap if the company maintains double or triple revenues each year. But what happens when there is a cyclical slowdown in the semiconductor industry? Or if some of Nvidia’s biggest customers pull back capital expenditures? Or what if you have low computing power needed to run complex artificial intelligence (AI) models and lead to lower GPU demand? Or if your competitor came up with a low-cost, scary solution that erodes Nvidia’s margins?
All businesses face uncertainty. And Nvidia certainly carries a considerable amount of risk. But that also has many opportunities. To quote Nvidia CEO Jensen Huang in a recent revenue call:
Models such as Openai, Grok 3, and Deepseek-R1 are inference models that apply inference time scaling. The inference model can consume an additional 100 times more calculations. Future inference models may consume more computations. The Deepseek-R1 sparked global enthusiasm. It’s a great innovation. But even more importantly, it open sources world-class inference AI models.
In short, Nvidia is not threatened by new inference models like Deepseek. Nvidia is also very optimistic about the possibility that AI will expand beyond the digital world to robotics, physical AI development, autonomous vehicles and more. Everything said, it’s possible that Nvidia will not rely on hyperschools in the future.
The impact of revenue growth on valuations over time
Purchases of Nvidia stocks are bet on the ongoing adoption of AI across a variety of end markets and use cases. Over time, Nvidia’s growth rate and margins will likely decline as AI becomes a more mature industry.
However, even if Nvidia’s revenue growth slows down to a combined annual growth rate of 15% over the next decade, for example, the stock is still an astonishing purchase. For context, consensus analyst estimates that NVIDIA increased to $4.49 in fiscal year 2026, with an increase of $5.72 (52.7% and 27.3%) in fiscal year 2027, respectively. Therefore, revenue growth is not expected to slow to 20% per year anytime soon.
Still, let’s pencil with a revenue growth rate of 20% over 10 years. And let’s say you’re just paying 25 times the profit you earn from the stock. Here’s what the stock price will look like under these assumptions: In the context, Nvidia is $124.81 per share at the time of this writing.
metric
Finance 2025
Finance 2026
Finance 2027
Finance 2028
Finance 2029
Accounting 2030
Finance 2031
Finance 2032
Finance 2033
Finance 2034
EPS
$2.94
$3.53
$4.23
$5.08
$6.10
$7.32
$8.78
$10.53
$12.64
$15.17
Stock price
$73.50
$88.25
$105.75
$127
$152.50
$183
$219.50
$263.25
$316
$379.22
Charts by the author. Note: Stock prices are calculations based on paying 25x profits, assuming everything else is equal.
Next, let’s assume that the analyst consensus estimates are correct for 2026 and 2027. And investors hope to pay only 20 times Nvidia’s revenue.
metric
Finance 2025
Finance 2026
Finance 2027
Finance 2028
Finance 2029
Accounting 2030
Finance 2031
Finance 2032
Finance 2033
Finance 2034
EPS
$2.94
$4.49
$5.72
$6.58
$7.56
$8.70
$10
$11.51
$13.24
$15.22
Stock price
$58.80
$89.80
$114.40
$131.60
$151.20
$174
$200
$230.20
$264.80
$304.40
Charts by the author. Note: Stock prices are calculations based on paying 20x revenues, and assume everything else is equal.
Even if growth slows sharply and multiple contractions in revenues just 20 times, Nvidia will be $300 in 10 years.
This exercise shows the power of revenue growth and what premium-price stocks at first glance are more valuable than what they look like.
Nvidia has a production that is extremely long-term retention
In many cases, investors are plagued by short-term factors, such as whether a company will reach quarterly forecasts or how it will be economic.
However, for Nvidia, growth is so explosive that even slowing down and multiple contractions could mean that inventory generates significant profits in the long term. As hyperscalers pull back spending, Nvidia still has many possibilities in other markets such as robotics, automation and more.
Adding it all makes the balance between Nvidia’s risk and potential rewards too cheap to ignore.
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Continues “
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Randi Zuckerberg, a former director of market development, Facebook spokeswoman and sister to Metaplatform CEO Mark Zuckerberg, is a member of Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of the board of directors of Motley Fool. Daniel Fallver has no position in any of the stocks mentioned. Motley Fool has positions for Alphabet, Amazon, Apple, Home Depot, Meta Platforms, Microsoft, and Nvidia, and is recommended. Motley Fool recommends the following options: A $395 phone at Microsoft for January 2026 length and a $405 phone to Microsoft for January 2026 short term. Motley Fools have a disclosure policy.
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