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Nvidia Shares Are Priced For Everything To Go Wrong: That Makes No Sense

Shares of Nvidia don’t trade like those of a company whose revenues are expected to rise 83% this year. Instead, the stock is priced as though everything that could go wrong in the next couple of years will go wrong. That creates an opportunity for investors willing to take a longer view.

Most semiconductor investors are chasing the stocks they think will grow the fastest over the next few years. So while shares of Nvidia have appreciated just 10% so far this year, distant rival Advanced Micro Devices is up 142%, while memory chip maker Micron, whose business has exploded thanks to demand from AI data centers, is up 213% year to date. The Philadelphia semiconductor index is up 71%.

As a result, AMD is trading at 53 times next year’s earnings, according to S&P Global Market Intelligence, while Nvidia is trading near its lowest multiple of next year’s earnings since July 2021. It is trading at just under 17 times next year’s earnings before interest, taxes, depreciation and amortization, well below its five-year average multiple of 36 times.

The bear case on Nvidia is by now well established. The explosion in its AI chip business since OpenAI released the first AI chatbot, ChatGPT, has drawn in a bunch of challengers selling their own AI chips—startups such as SambaNova, Cerebras Systems and Groq (which ended up licensing its technology to Nvidia). Meanwhile, Google, which developed its own AI chip years ago, has begun selling it as well as renting it via its cloud unit. Amazon, which also has its own AI chip, is following suit. Meta Platforms, Microsoft, OpenAI and Anthropic have all taken some steps toward developing their own AI chips.

And then there’s AMD, which later this year will begin shipping its first AI server rack system, a set of AI chips and other gear that is tightly integrated so everything works smoothly together. The system, called Helios, should be able to fulfill functions similar to those of the Grace Blackwell and Vera Rubin AI chip systems Nvidia has been selling for the last few years.

There’s also the reality that Nvidia’s revenues are now so big, rapid growth is just harder for it to achieve than for smaller firms.

The main bull case for Nvidia is that its growth prospects are stronger than the stock price suggests. Nvidia’s current price, around $212 per share, implies that the company will hardly grow at all past 2027, said Morningstar analyst Brian Colello. He argues that the stock should be trading closer to $280 per share, or roughly 16 times the sales he expects Nvidia to generate in its fiscal 2029, which ends in January that year. That multiple is at a level he sees as reasonable, given his expectation that Nvidia will continue to expand its top line and adjusted earnings per share by more than 45% every year until fiscal 2029, just as it has done over the last several years.

“Nvidia trades at a cheap multiple if you go back a couple years out, so the big question is, two years from now, is there still going to be significant growth in hyperscaler capex, enterprise capex? Does Nvidia maintain most of its market share? We think those answers are yes, and that’s why the stock is undervalued,” said Colello.

Indeed, analysts expect Nvidia to grow 42% next fiscal year, which ends in January 2028, to $560 billion in sales, and then another 23% in the year after. AMD isn’t expected to grow that much faster. The chipmaker’s sales grew 34% last year to $34.6 billion. Analysts project it will grow 57% to $78 billion in sales in the year to December 2027 and 36% in the following year. That hardly justifies the premium at which AMD trades.

Even so, investors don’t think of Nvidia as a growth stock anymore. Investors in semiconductors are gravitating toward growth stories where they perceive the “most acute supply-demand imbalances, where there is a sort of untapped growth opportunity,” said John Belton, portfolio manager at Gabelli Funds. “Nvidia at this point doesn’t really fit any of those criteria.”

Belton has been adding to his stakes in AMD and Micron. He says he is holding onto his Nvidia shares, though he hasn’t increased his position in recent months.

“AMD is a more speculative offering,” he said. The nascent nature of AMD’s offerings means the stock could have a lot more upside “if they get it right.”

But investors may be underestimating the value of Nvidia’s long experience in making AI chips—particularly in the event of a pullback by tech firms such as OpenAI from AI investment. If that happens, many of the companies new to chip development may throw in the towel and stick with Nvidia. In other words, an AI bust would arguably hurt Nvidia less than newer chip designers whose product is still being proven.

Despite all these challenges, Nvidia remains the dominant supplier of AI chips. Its share of the market for chips used in inference, the process of running the models rather than training them, has actually risen, The Information reported recently.

For the moment, though, there’s no sign that the massive investment in new chips is slowing down. Alphabet on Wednesday increased its projection for 2026 capital expenditures and said it planned to increase that spending again next year.

Moreover, while Nvidia’s strategy of investing in potential customers—such as neoclouds Nebius and CoreWeave—has been criticized lately, that approach will likely protect its business in the event of a downturn.