Nvidia stock has surged over 600%, leading to questions about overvaluation based on P/E ratio.

From Nasdaq: 2024-08-10 05:59:00

Nvidia (NASDAQ: NVDA) stock has seen a surge of over 600% since the beginning of 2023, with its market capitalization skyrocketing from $360 billion to $2.5 trillion, making it the fastest pace of value creation in stock market history. However, some analysts believe the stock may be overvalued based on its high price-to-earnings ratio.

The Nasdaq-100 index, which includes Nvidia and other big-tech companies, trades at a P/E ratio of 30.7, while Nvidia stock trades at a P/E ratio of around 58. Despite its high valuation, Wall Street estimates Nvidia will have lower EPS in the future, making its stock potentially cheaper than the index on a forward-looking basis.

Nvidia’s data center chips are crucial for AI development, leading to a significant technological advantage over competitors. Its data center revenue surged 427% in the last quarter, indicating strong demand. For long-term investors, Nvidia stock may be considered a bargain due to future growth prospects and technological leadership in the industry.

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Disclaimer: The author, Anthony Di Pizio, has no holdings in the mentioned stocks. The Motley Fool has positions in Nvidia and recommends it. The views expressed here are personal and do not necessarily represent Nasdaq, Inc.



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