Nvidia's stock is cheap despite massive growth, trading at 24 times forward earnings.
Sales jumped 106% to $96.2 billion.
The market may be wary of a slowdown in AI spending.
What happened
Nvidia's sales surged 106% year over year to $96.2 billion, and earnings per share rose 128%. Despite this, the stock trades at a forward P/E of 24.2.
Why it matters
The low valuation may reflect market concerns about the durability of AI spending. Management expects hyperscaler capex to reach $1.3 trillion in 2027 and annual AI infrastructure spending of $3 trillion to $4 trillion before the decade ends.
What to watch
The key question is whether AI spending will slow, which could force analysts to cut profit forecasts and drag the stock down. Watch Nvidia's revenue growth target of 70% for fiscal 2028.
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Nvidia's results are spectacular, with sales up 106% and earnings up 128%, but the market has priced the stock at a forward P/E of 24.2, roughly half of what one might expect. This conservative valuation likely stems from uncertainty about the longevity of the AI boom. The company's growth is tied to massive capital spending by hyperscalers, which have $1.7 trillion in cloud backlogs as of June 30. Management sees $1.3 trillion in capex by 2027 and up to $4 trillion annually later this decade. However, if AI adoption fails to deliver tangible returns, customers may cut spending, triggering a ripple effect. The stock's fate hinges on whether AI demand remains robust and whether Nvidia can fend off rivals with advanced chips. The market's thirst for certainty is evident in the modest multiple, despite stellar financials.
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