Nvidia, as a growth stock, fundamentally hinges on the earnings per share (EPS) growth rate. An increase in EPS growth rate is the driving force that pulls valuation ahead of stock prices. Conversely, if the expected growth rate slows down in the future, even if it remains high growth, the valuation may also struggle to rise further and may even experience a valuation kill. After all, stock price changes ultimately equal the sum of "valuation" changes and "earnings per share" changes.
For growth stocks, the most profitable phase occurs during the Davis Double Play period, when both valuation and EPS grow significantly. Financial reports indicate that Nvidia bottomed out in January 2023 and rebounded, initiating accelerated growth in July of the same year. Looking at the stock performance over the past two years, Nvidia's recent surge is clearly supported by high EPS growth.
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