Not been paying attention? Nvidia stock’s looking very cheap

Dr James Fox takes a closer look at Nvidia stock, which has been moving sideways in recent months. He believes it’s being overlooked by investors.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Image source: Getty Images

The argument that Nvidia (NASDAQ:NVDA) stock’s expensive is very hard to sustain in the current environment. Over the past six months, it’s actually down around 3%, but the company has continued to deliver incredible operational data while its customers continue to plough money into artificial intelligence (AI) hardware.

With its FY26 now over, the forward price-to-earnings (P/E) ratio (for the coming 12 months) sits at just 22.6 times. That’s less than the Nasdaq and S&P 500 averages. And this is a company that sits at the heart of the AI revolution, continually proves its technologically far ahead of its peers, and has a whopping 58.8% operating margin.

Maybe earnings are about to go into reverse… after all, the P/E ratio can be incredibly misleading when companies are in a state of decline.

Well, that’s not the case here. Analysts point to an average annual earnings growth rate of 37.5% over the medium term. Personally, I think this points to growth at a very reasonable price. And that’s confirmed by the price-to-earnings-to-growth (PEG) ratio — P/E divided by forward growth rate — which sits at 0.6.

What’s more, applying this growth rate, in just three years, the company’s earnings would more than double (160% total growth). If the stock price stayed the same while earnings doubled, the P/E ratio would drop from 22.6 to about 8.7 times.

The long-term champion thesis

It is difficult to bet against Nvidia when you realise it’s not just selling chips, it’s building the operating system for the physical world. While competitors scramble to match their hardware, Nvidia’s technological moat is supported a full-stack ecosystem.

This creates a powerful lock-in effect where developers find it faster and cheaper to stay in the Nvidia ecosystem than to rebuild elsewhere.

What’s more, it’s going to be the company that benefits from other companies’ successes. What do I mean by that? Well, if Tesla successfully scales its robotaxis and Optimus robots, there will be a lot of Nvidia GPUs making that happen behind the scenes.

Financially, Nvidia’s also an absolute fortress. As of early 2026, it maintains a staggering net cash position of roughly $50bn. It can outspend peers on R&D and it can secure the future through strategic investments.

For instance, their recent multi-billion-dollar moves into the UK start-up ecosystem and massive stakes in companies like OpenAI (rumoured at $20bn) ensure it owns a piece of the very companies that buy their chips.

I also wouldn’t be surprised to see it dominate in the quantum era. It has enough cash to buy all the independent US-listed quantum start ups.

Risks? Well, there will be some concern about its customers developing their own chips. Alphabet already does this, but it also buy tons of Nvidia GPUs. It’s something to watch.

However, in this vast AI market, it’s hard to see a world where demand for Nvidia chips isn’t huge. With that in mind, I certainly believe it’s a stock worth considering.

James Fox has positions in Alphabet and Nvidia. The Motley Fool UK has recommended Alphabet and Nvidia. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Here’s how many British American Tobacco shares it takes to earn a £1,000 monthly second income

Is an AI-resistant business with a 5.38% dividend yield a good choice for investors looking for a second income in…

Read more »

Black woman using smartphone at home, watching stock charts.
Investing Articles

1,001 Barclays shares bought 12 months ago are now worth…

Barclays shares have delivered excellent returns over the last year. But can the FTSE 100 bank keep outperforming? Royston Wild…

Read more »

Two business people sitting at cafe working on new project using laptop. Young businesswoman taking notes and businessman working on laptop computer.
Investing Articles

Get started on the stock market: 3 ‘safe’ shares for beginner UK investors to consider

Kicking off an investment portfolio on the stock market may seem like a scary prospect. Mark Hartley details a few…

Read more »

Black woman using smartphone at home, watching stock charts.
Investing Articles

2 spectacular growth stocks to consider buying in March

Investors ignore the risks with growth stocks when things are going well. But when this changes, fixating on the dangers…

Read more »

UK financial background: share prices and stock graph overlaid on an image of the Union Jack
Investing Articles

Why is the FTSE 100 suddenly beating the S&P 500?

The UK's blue-chip index has been on fire over the past couple of years, helping it catch up to the…

Read more »

Artillery rocket system aimed to the sky and soldiers at sunset.
Investing Articles

This non-oil FTSE stock’s risen 4.6% in 3 days. What’s going on?

Against the backdrop of trouble in the Middle East, James Beard investigates why this FTSE 100 stock’s doing so well.…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Has a 2026 stock market crash just come a whole lot closer?

If we're in for a stock market crash, what's the best way for us to prepare, and what kinds of…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

Up 79% in a year, this FTSE 250 stock still gets a resounding Strong Buy from analysts

This under-the-radar growth stock in the FTSE 250 has been on fire over the past 12 months. Why are City…

Read more »