Key Points
Nvidia (NASDAQ: NVDA) may be one of the biggest bargains in the market right now. This may be odd to learn, as it’s one of the world’s largest companies (it fluctuates between the largest and second-largest, trading places with Apple (NASDAQ: AAPL) on a daily basis), but I think it’s the case. History shows that Nvidia’s stock is historically undervalued, and that once the fears of AI spending blow over, as they always have, the stock could have a monster rally to end the year.
That makes now the perfect time to load up on shares, as this deal may not last for much longer.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
Image source: Nvidia.
The AI build-out will continue to drive incredible growth
The current market sentiment is that an AI bubble is forming. It’s impossible to know if this sentiment is right or wrong, but I think there is plenty of language from the AI hyperscalers that indicates the question is irrelevant. Time and time again, the AI hyperscalers have informed investors that the risk of underspending is greater than that of overspending. Major AI hyperscalers continue to raise capital expenditure guidance and indicate that 2027 will be a year of further growth.
This means that even though the market is fearful about AI overspending, it can do nothing to stop it. These worry cycles are nothing new, and several have occurred since the AI build-out began a few years ago. Eventually, the market will become bullish on AI spending again, and once it does, Nvidia is primed to benefit.
In 2027, Nvidia expects AI hyperscaler data center capital expenditures to reach $1 trillion. By 2030, that figure is expected to reach $3 trillion to $4 trillion worldwide annually. That’s an incredible trajectory, and while the market may doubt Nvidia, what it fails to recognize is that Nvidia has far more information regarding the future of the AI build-out than the average investor. So, even if Nvidia misses the actual dollar figure, I think it’s likely it’ll be correct on direction.
If it is, then its stock is incredibly undervalued, and now is the time to pounce on it.
Nvidia’s stock is historically cheap
Since the AI build-out began in 2023, its stock has never been this cheap.
NVDA PE Ratio (Forward) data by YCharts
At 30 times trailing earnings, Nvidia’s stock is far cheaper than Apple’s, which trades for 41 times trailing earnings. Furthermore, Nvidia’s latest quarter saw 85% growth while Apple’s had a comparatively slow 17% growth rate.
Nvidia’s valuation of 21.9 times forward earnings is nearly the same as the S&P 500 (SNPINDEX: ^GSPC), which trades for 21.1 times forward earnings. That means that after this year’s growth is priced in, Nvidia is essentially being priced as a market-average stock. However, Wall Street analysts expect Nvidia to grow its revenue by 42% next year. There is a huge mismatch between Nvidia’s growth projections and its stock valuation, and that’s why I think it’s pretty easy to declare Nvidia’s stock historically cheap at these levels, especially compared to the other largest company in the world, Apple.
The market’s negative sentiment has pushed Nvidia’s stock to an unreasonable valuation. As AI hyperscalers report earnings over the next few weeks and Nvidia reports at the end of August, I think the skepticism around AI will falter and send shares of Nvidia soaring. Even if it doesn’t, I’ll still be bullish on Nvidia, as it’s one of the best ways to invest in the AI build-out. With its dirt cheap price tag, it may be the best stock pick right now.
The only thing that would cause me to reverse course is if AI hyperscalers start pulling back their spending. However, there have been no indications of that, making Nvidia a no-brainer buy.
Should you buy stock in Nvidia right now?
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Keithen Drury has positions in Nvidia. The Motley Fool has positions in and recommends Apple and Nvidia. The Motley Fool has a disclosure policy.
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