Nvidia (NASDAQ:NVDA) stock will likely appear very expensive to many UK investors. Shares in the tech company are changing hands for 52.8 times earnings from the last 12 months. That makes it more expensive than any stock to be found on the FTSE 100.
However, we’re investing for the future, and not for the past. As such, it’s important to look at earnings forecasts for companies. These forecasts, compiled by analysts, can be wide of the mark, but they can still provide us with a good basis for making investment decisions.
Thankfully, Nvidia’s forecast sremain very exciting and indicate that the company is potentially still undervalued.
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Tip top earnings forecast
We want to be investing in companies that are growing earnings, and that’s certainly Nvidia. The company is set to deliver earnings per share (EPS) of $2.95 this current year, up from $1.24 last year and $0.14 in 2020.
The trajectory has been truly phenomenal and it’s poised to continue. The current consensus forecast points to EPS of $5.58 in the year ending January 2027. This has a dramatic impact on the price-to-earnings (P/E) ratio, taking it from a forward ratio of 46.8 times for 2025 to just 24.8 times for 2027.
For context, that means Nvidia is cheaper than less exciting companies like Walmart, Nike, and General Electric Company in 2026/27. None of these stocks are likely to deliver Nvidia-like growth in the years after too.
| Fiscal Period Ending | Earnings per share Estimate | YoY Growth | Forward P/E |
|---|---|---|---|
| January 2025 | 2.95 | 127% | 46.8 |
| January 2026 | 4.42 | 50% | 31.3 |
| January 2027 | 5.58 | 26% | 24.8 |
The PEG ratio tells us a lot
The above is incapsulated in the price-to-earnings-to-growth (PEG) ratio. This is essentially the forward P/E ratio divided by the expected growth rate for the next three to five years. Historically a PEG ratio below one was considered good value, but to me, it doesn’t make sense to be that arbitrary.
Instead, I feel it’s better to compare the PEG ratio with peers in the sector. Nvidia’s PEG ratio of 1.2, for example, represents a huge 35% discount to the information technology sector average. This is a really good sign.
The target price is high
In addition to the above, analysts also believe that Nvidia stock should be priced higher. The stock currently has 37 Buy ratings and just three Hold ratings — there are no Sell ratings. And the average share price target is $176. That’s 26% higher than the current share price.
Enough cash to fend off rivals
Nvidia has maintained its supremacy in the market for artificial intelligence (AI)-enabling processors. However, in this fast moving industry, it’s not impossible to imagine that a peer, like AMD, catching up and undermining Nvidia’s very dominant position. That’s certainly a risk worth bearing in mind, with Nvidia currently holding around 90% of the GPU market and 98% in the GPU training market.
Personally, I’m optimistic that Nvidia will continue to innovate and maintain a powerful position in the market. It also has one advantage over some of its peers, and that’s a huge amount of cash — between January and October this year, cash reserves grew from $25bn to $38.5bn.
And although I already hold Nvidia shares, I’m considering buying more — even though it would be 300% higher than my original buying price.
