Over the past five years, Nvidia (NASDAQ:NVDA) stock has gone from a relative unknown for UK investors to one of the most common holdings. It’s the largest listed company in the world and represents 8% of the S&P 500‘s total market capitalisation.
The important question for investors is whether the stock is worth buying for 2026? The stock has pulled back in recent weeks following its earnings report, which was initially very well received. However, the market ebbs and flows, and now it’s ebbing.
For me, and for most investors, the first thing to consider is the valuation. And it’s certainly not expensive. The stock is trading around 23.4 times forward earnings (rolling basis — the next 12 months). That means it’s trading in line with the average for the information technology sector.
Then, we should address the growth-adjusted valuation and the balance sheet. Well, earnings growth averaged over the medium term is forecasted to be around 37%. That gives us a price-to-earnings-to-growth (PEG) ratio of 0.6. That’s a massive discount to the sector average at 1.7.
And the balance sheet? Well that’s rock solid. The business has a net cash position worth around $50bn. It’s so rich it could buy most of the companies on the FTSE 100 in cash.
What’s more, analysts are continuing to push their forecasts for Nvidia’s earnings upwards. This should reflect potential big orders from China that hadn’t previously been accounted for given the ban on exporting its AI-enabling chips there.
The risks, as far as I’m concerned are about the competitor landscape and whether AI becomes less dependent on Nvidia’s GPUs. It’s possible, but there aren’t many signs of that so far.
What’s cheaper than Nvidia?
Investors considering Nvidia may also be looking at other big tech stocks like Tesla, Alphabet, and Micron. Personally, I own the latter two, but wouldn’t consider Tesla right now, and here’s why.
It all comes down to that valuation starting point. Tesla has grand plans to dominate the autonomous driving era. However, that growth is very hard to forecast and it’s very hard to say Tesla will definitely dominate the autonomous era.
And because of that, it’s just incredibly hard to justify the valuation. It trades at 283 times forward earnings with a PEG ratio of 8.7. That’s a figure that doesn’t give us a margin of safety.
Alphabet and Micron, on the other hand, still interest me. Alphabet has been on one hell of a run following strong results and reports that it will sell its ASICs (Application-Specific Integrated Circuits, which are custom-designed computer chips) to peers.
However, with a PEG ratio around 1.8, I’m probably not going to add more in the near term.
Micron still looks cheap to me. It trades around 10.8 times forward earnings. Yes, it’s a traditionally cyclical stock, but AI is a secular trend. The PEG ratio sits around 0.4.
In short, Micron might be cheaper than Nvidia. But they’re impossible to compare perfectly. I think both are worth considering.
