NVIDIA's stock has risen just 10% this year, pushing its valuation to the lowest level in nearly five years, a stark contrast to rivals AMD and Micron, which have surged 142% and 213%, respectively. The market's current pricing seems to anticipate every possible negative outcome, but analysts argue this very pessimism is creating an opportunity for long-term investors.
Morningstar analyst Brian Colello notes that NVIDIA's current share price of around $212 implies the market expects almost no growth for the company after 2027. He believes the stock's fair value is closer to $280, which is about 16 times the projected sales for fiscal 2029. According to S&P Global Market Intelligence, NVIDIA's current price-to-EBITDA multiple is roughly 17 times next year's expected earnings, far below its five-year average of 36 times and in its lowest range since July 2021.
Meanwhile, capital expenditure by hyperscale cloud providers shows no signs of peaking. Alphabet recently raised its 2026 capital expenditure forecast and indicated further increases next year, providing ongoing support for AI chip demand.
Rivals Surge as NVIDIA's Valuation Slips into 'Value Stock' Territory
Against the backdrop of the Philadelphia Semiconductor Index's 71% gain this year, NVIDIA's performance appears notably muted. AMD trades at 53 times next year's expected earnings, commanding a growth stock premium, while Micron has surged over 200% this year, fueled by AI data center demand.
John Belton, portfolio manager at Gabelli Funds, states that semiconductor investors are chasing stocks they believe have the "strongest supply-demand imbalances and untapped growth opportunities," adding that "NVIDIA doesn't currently meet any of those criteria." Belton has been recently adding to his positions in AMD and Micron while holding steady on NVIDIA without increasing his stake.
Behind this valuation divergence is a market reclassification of NVIDIA—it is being recategorized from a growth stock to a large-cap, mature technology company.
Bearish Thesis: Competitors Emerge, Scale Constrains Growth
The challenges facing NVIDIA have formed a clear narrative. Since OpenAI launched ChatGPT, the AI chip market has attracted a wave of new entrants: startups like SambaNova and Cerebras Systems have developed their own chips; Google's internally developed AI chips are now available externally via cloud rental; Amazon has followed suit; and Meta, Microsoft, OpenAI, and Anthropic are all progressing with their own in-house chip projects.
AMD is set to begin shipping its first AI server rack system, Helios, later this year—a highly integrated AI chip and hardware system designed to directly compete with NVIDIA's Grace Blackwell and Vera Rubin series.
Furthermore, NVIDIA's massive revenue base itself acts as a ceiling on growth. The company's absolute revenue size makes direct comparisons of growth rates with smaller competitors inherently incomparable.
Bullish Rebuttal: Pricing Overly Pessimistic, Growth Prospects Underestimated
There is a clear discrepancy between analyst forecasts and market pricing.
According to analyst projections, NVIDIA's revenue will grow 42% in the next fiscal year (ending January 2028) to reach $560 billion, followed by an additional 23% growth the year after. In comparison, while AMD is expected to grow revenue by 57% in 2027 and 36% in 2028, its absolute size—an estimated $78 billion in 2027—is in a different league from NVIDIA, making its 53 times earnings premium difficult to justify.
Brian Colello points out that NVIDIA "looks quite cheap on a multi-year forward basis," with the key question being whether hyperscale cloud provider and enterprise capital expenditure will remain robust in two years, and whether NVIDIA can defend its market share.
"We believe the answer is yes, which is why the stock is undervalued," he says. He projects NVIDIA's revenue and adjusted earnings per share will both grow at over 45% annually through fiscal 2029.
Moat Remains: Inference Market Share Rises, Counter-Cyclical Resilience Not to Be Overlooked
Despite intensifying competitive pressure, NVIDIA's dominance in the AI chip market remains unshaken. According to a recent report from The Information, NVIDIA's market share in inference chips (used for running models, not training them) has actually increased.
More notably, the market may be underestimating NVIDIA's counter-cyclical resilience. Should tech companies like OpenAI reduce AI investment, many companies newly venturing into chip development might abandon their efforts and return to NVIDIA's ecosystem. This suggests an "AI winter" could actually impact NVIDIA less than it would newer, unproven chip designers.
Additionally, NVIDIA's strategic investments in new cloud service providers like Nebius and CoreWeave, though recently questioned, could provide a buffer for its business during a market downturn. With hyperscale capital expenditure still expanding, whether NVIDIA's valuation truly reflects its fundamentals is becoming the core of market debate.
Comments