Yahoo Finance
2 min read
For all the interviews Nvidia (NVDA) CEO Jensen Huang has been doing over the past six months, banging the drum for a powerful AI future in the process (powered by his chips, naturally), you would think shares of the AI chip darling would be trading on peak valuation multiples.
And you would be wrong. It couldn’t be further from the truth, especially in the wake of a fresh tech stock rout to kick off the fall.
Nvidia shares trade on a mere forward PE ratio of 12.9 times, per Yahoo Finance AlphaSpace data. For perspective on how shocking this is, the S&P 500, filled with far slower earnings growers than Nvidia, trades on a forward PE ratio of 18.7 times.
What’s more, Nvidia’s stock trades on a paltry 0.27 times price to earnings growth ratio, better known as the PEG ratio. And for a dose of perspective here, Coca-Cola (KO) shares trade at a PEG ratio of 2.57 times. While Coca-Cola has been doing well, it’s not an expected growth juggernaut in the same vein as Nvidia.
The stock is down 11% in the past month.
Tech stocks like Nvidia aren’t getting shredded for any old reason.
It’s actually very fundamental.
First, free cash flow is drying up at Big Tech leaders such as Alphabet, Meta and Amazon, and capex is going up dramatically. Investors are questioning whether this ratio is totally out of whack given more realistic growth projections around AI.
Second, there is concern these hyperscalers will have to cut back on capex in 2027 to appease nervous investors. That could mean fewer than expected AI chip orders from Nvidia.
The AI trade saw a serious slamming on Friday, with more than $1 trillion in market value wiped away as investors fretted about the weakening cash flow profiles of Big Tech. Nvidia’s stock finished the session down 4.22%.
“The AI narrative is cracking as profitability concerns intensify,” warmed Miller Tabak chief markets strategist Matt Maley.
Brian Sozzi is Yahoo Finance’s Executive Editor, host of the Sozzi Unleashed morning show, the ‘Power Players With Brian Sozzi’ podcast and a member of Yahoo Finance’s editorial leadership team.
