Nvidia at 26x Forward Earnings: A "Lopsided" Ratio That Makes the Stock Look Cheap

Ahead of Nvidia's earnings, analysts are converging on an unusual valuation argument: Nvidia trades at just 26x forward earnings — and with revenue growing 65% in the last fiscal year, that multiple looks genuinely cheap.

26x Forward P/E: A Lopsided Ratio of Price to Growth

The central metric in the pre-earnings analysis is the PEG ratio — Price/Earnings to Growth. Divide Nvidia's forward P/E of 26 by its last fiscal year revenue growth of 65%, and you get a PEG of roughly 0.4. Anything below 1 is conventionally considered undervalued relative to growth.

One analyst described it as a "lopsided ratio of price to growth in a company this size." The argument is straightforward: at a company generating this kind of growth, a forward P/E of 26 implies that the market is not fully pricing in the forward earnings power. At double the current price, the stock would still look cheap on a growth-adjusted basis.

65% Revenue Growth: What's Driving It

Nvidia's fiscal year 2025 revenue grew approximately 65% year-over-year, driven by AI data center demand that substantially exceeded market expectations. Big tech companies have been deploying tens of billions of dollars into AI infrastructure, and Nvidia GPU demand has consistently outpaced available supply.

The ramp of Blackwell-architecture GPUs is expected to sustain the trajectory. Crucially, AI inference demand — running models after training — is growing at least as fast as training demand, which expands the total addressable market and makes data center GPU demand more durable.

"Would Still Be Cheap at Double the Price" — The Bull Case

The bull case rests on two compounding factors: market share and margins. Nvidia holds over 80% of the AI chip market, and the CUDA software ecosystem creates a switching cost that has proven resistant to competitive erosion. Customers who build on CUDA face significant retraining costs to move to alternative platforms.

The margin story is equally striking. Nvidia's gross margin has exceeded 70% — a level more characteristic of enterprise software than hardware. As revenue scales, earnings leverage becomes dramatic: incremental revenue drops through to the bottom line at unusually high rates.

Pre-Earnings Risk: Expectations Are Already High

The bull case is compelling — but so is the pre-earnings risk structure. Expectations coming into the print are extremely elevated. A beat that falls short of what the most aggressive buy-side models had anticipated, or guidance that doesn't fully satisfy the market, could produce a sharp sell-off despite objectively strong numbers.

U.S. export controls on AI chips to China remain a risk variable. China was once a significant revenue contributor; tighter restrictions would create a direct hit to near-term earnings. Longer term, AMD, Intel, Google, and Amazon's in-house chip efforts represent the competitive threat to Nvidia's market share dominance.