Nvidia Stock is Cheap—What That Signals
Here’s a startling statistic: The last time Amazon shares traded as cheaply as they are now, as a multiple of earnings, was during the 2008 financial crisis, according to Koyfin data. Indeed, Amazon’s stock is so cheap that it’s trading at a discount to Walmart for the first time ever.
Considering that Amazon’s revenue is growing at roughly a 12%-plus annual basis, and Walmart at closer to 5%, the disparity in their valuations doesn’t make much sense. Then again, it doesn’t make any sense that shares of AI chip giant Nvidia are now trading at their lowest forward earnings multiple in seven years—or that the valuations of Microsoft and Oracle have converged for the first time in a decade. Is this some kind of selective AI-wariness syndrome? (and if so, what does that mean for OpenAI’s and Anthropic’s IPO prospects?).
Sure, the whole market has sold off in the past month thanks to the Iran war. But that doesn’t justify how cheap these stocks are. At Nvidia’s closing price on Monday at $165.17, it is trading at a forward earnings multiple of 19.9. Apple, in contrast, is trading at 28.7 times forward earnings.
Does that make sense given their relative growth rate? Nvidia’s revenue is expected to expand 71% in the year to next January, while Apple’s topline is projected to expand 12% in the year to September, according to S&P Global Market Intelligence. Even assuming Nvidia’s growth slows sharply in the coming years, it’s still likely to outpace Apple.
Nvidia is arguably the biggest money-maker from the AI boom, at least so far. Apple hasn‘t benefited much at all. Investors, though, don't seem to care.
What about other big tech stocks such as Microsoft’s? After falling about 26% so far this year, the software giant’s shares are trading at 20.4 times forward earnings, compared with smaller cloud and software rival Oracle at 18.5. Two years ago, Microsoft was trading at 34 times forward profits to Oracle’s 20 times, Koyfin data shows.
One explanation for Microsoft’s slide may be that analysts project its annual revenue growth will stagnate at around 16% for the next couple of years, close to its growth level of the past few years, according to S&P. Oracle’s topline growth, in contrast, is expected to spike to 46.5% by fiscal 2028, compared with 8.4% in its fiscal 2025 year that ended last May.
But Oracle is a fraction of Microsoft's size, which makes a growth comparison tricky. Moreover, Oracle is borrowing heavily to fund its expansion, which makes it a much riskier bet. This is what you might call an AI opportunity.