Is Nvidia Truly an Expensive Stock?
Let’s analyze 'one of the most dominant stocks in history' and compare it to its Mag 7 brethren.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
The market action is mixed on Wednesday as investors await earnings from Nvidia NVDA after the close. Nvidia is not only the most important stock in the market, but it also has the largest market capitalization at about $4.4 trillion. It is one of the most dominant stocks in history.
Nvidia was trading at about $10 back in 2022, so it has increased by about 18 times since then and has doubled in just the past five months after a sharp pullback. It is common sense to believe that the stock is expensive.
The reality of Nvidia is that it is one of the cheapest of the Magnificent Seven stocks MAGS based on the relationship between its price/earnings (P/E) ratio to EPS growth. This is commonly referred to as the PEG ratio.
Nvidia has a fiscal year ending in January. The current EPS estimate for the January 2026 fiscal year is $4.42. Based on the current price of around $181, that is a P/E of 41. Nvidia is projected to earn $6.06 in the fiscal year ending January 2027. This represents EPS growth of 37%. A P/E of 41 divided by EPS growth of 37% equals a PEG of 1.1. The lower the PEG, the cheaper the stock.
Let’s compare Nvidia to Apple AAPL. Apple is expected to earn $7.37 in its fiscal year ending September 2025. That is a P/E of 31, based on the current price, which is lower than NVDA’s 41. However, Apple is only expected to grow EPS 8% in the fiscal year ending September 2026. Therefore, its PEG is 3.87, or 31 divided by 8, which is 3x more expensive than NVDA.
Nvidia, in other words, is expecting growth that is roughly equal to its P/E, while Apple is expecting growth of just about one-quarter of its P/E. That makes NVDA a far better value.
We can do similar PEG analysis with the other Mag 7 names, and NVDA comes out looking very cheap by comparison.
A big part of the reason that Nvidia has this PEG discount is that the semiconductor sector is historically very cyclical. The group is typically not a true "growth" area like for an Apple or Microsoft MSFT, which are in a different tech area. There is an assumption that Nvidia’s EPS growth will drop very substantially very quickly.
What's more, there is a great likelihood that the market is underestimating how long the AI cycle will last for Nvidia. If it can continue its EPS growth at even half of the current 40%, the stock is still extremely cheap on a PEG basis.
Is Nvidia an expensive stock?
Not based on current P/E and growth rates. That is why the stock is very likely to find aggressive buying support on any pullbacks. If Nvidia drops on its earnings but signals the continuation of strong EPS growth, the dip buyers will be loading up.
At the time of publication, Rev Shark was long NVDA.
