August 29, 2025

Nvidia’s hyper-growth keeps stock valuation out of bubble zone

(Bloomberg/Ryan Vlastelica, Carmen Reinicke and Subrat Patnaik) — For all the handwringing about Nvidia Corp.’s sky-high market value pushing the stock into bubble territory, its revenue growth keeps investors buying.

While the chipmaker’s earnings this week weren’t the blowout Wall Street was hoping for, they did show that its sales are still climbing faster than those by the technology universe more broadly. Nvidia is expected to post revenue growth of at least 42% over the next four quarters, compared with an average of roughly 10% for the tech-heavy Nasdaq 100 Index, according to data compiled by Bloomberg Intelligence.

The stock is actually getting cheaper as analysts raise their earnings estimates. Nvidia traded at less than 33 times projected profits as of Thursday’s close, down from 35 three weeks ago. The Nasdaq 100 was priced at 27 times, and there were 30 companies in the 100-member index with higher valuations than Nvidia, including Starbucks Corp. and Netflix Inc. Nvidia shares shed as much as 3.4% in Friday morning trading.

“If you went back a few years, people would’ve said that there’s no chance a company this big could grow this fast,” said Bill Stone, chief investment officer at Glenview Trust. “The valuation is certainly not out of bounds, especially relative to hyper-growers.”

To see the other side of this, take a look at Palantir Technologies Inc., whose stock was up 421% over the past 12 months and is the best performing stock in the Nasdaq 100 and S&P 500 Index in 2025. The maker of data analysis software is projected to deliver revenue growth similar to Nvidia over the next year, but is priced around 200 times estimated profits, making it the most expensive stock in the S&P 500.

If Nvidia, which has a market value of $4.4 trillion, had the same earnings multiple as Palantir, it would be worth about $26 trillion. And its stock price would be about 500% higher.

Boom And Bust

Even among the small group of megacap technology companies, Nvidia’s valuation doesn’t particularly stand out — even though it’s growing much faster. Microsoft Corp. was priced at 32 times estimated earnings, while Apple Inc. traded at 30 times. Revenue growth at both companies is expected to be a fraction of Nvidia’s in their current fiscal years, at 14% and 6%, respectively.

The history of the semiconductor industry, which is notorious for its boom-to-bust cycles, is helping to keep a lid on Nvidia’s valuation. In the past two decades, the Philadelphia semiconductor index has had two drawdowns of more than 45% amid slumping demand. So it’s reasonable for investors to be concerned that soaring spending on chips used in artificial intelligence computing, Nvidia’s specialty, will cool at some point.

“The only controversy is when everybody has built every data center, does it go from explosive growth to nothing,” said Paul Meeks, managing director at Freedom Capital Markets. “That’s the worry.”

But Nvidia’s earnings showed that’s unlikely to happen any time soon. The company’s AI opportunity is “immense,” Chief Executive Officer Jensen Huang said on Wednesday. He estimated spending on AI infrastructure will reach $3 trillion to $4 trillion by the end of the decade.

“When you look at the pace of growth or the PEG ratio, that suggests Nvidia is pretty reasonably valued,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott. “We could see the multiple moving much higher, maybe as high as 60.”

Relatively Cheap

A company’s PEG ratio is a calculated by dividing its price-to-earnings ratio by its profit growth rate. A lower number implies a better value. Nvidia’s PEG ratio stood at 0.8, the lowest among the Magnificent Seven tech giants and well below its average over the past five years of 1.5, according to data compiled by Bloomberg.

This was not always the case. Nvidia’s price-to-estimated-earnings briefly topped 60 in 2023, which preceded the first in a series of blowout earnings reports fueled by an arms race for its chips. In hindsight, that price turned out to be a bargain. Nvidia shares have gained more than 400% since the company’s valuation peaked at 63 times estimated earnings on May 18, 2023.

That’s partly because in the more than two years since, growth has consistently outstripped Wall Street’s projections, according to Richard Clode, portfolio manager at Janus Henderson.

“If you had conviction in your own ‘E’ being a lot higher, then actually the valuation for Nvidia has never been overly challenging,” Clode said. “That remains the case today.”

Looking at the tens of billions of dollars tech giants including Microsoft Corp. and Alphabet Inc. are plowing into AI infrastructure, there’s no reason to expect that trend to disappear in the near future, according to Glenview Trust’s Stone.

Nvidia “is the absolute market-dominating leader, and that should command a valuation premium, especially with the margins it has,” Stone said. “At the end of the day, there’s still a lot more demand than supply, which is a good place to be.”

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Nvidia’s hyper-growth keeps stock valuation out of bubble zone

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