Image source: Getty Images
Nvidia (NASDAQ:NVDA) stock’s already delivered exceptional returns, but analysts remain confident further gains are possible over the next 12-24 months.
The current analysts’ consensus price target of $253.02 implies the stock’s 33% undervalued today. Forecasts span a wide range, from $140 at the bearish end (which I really don’t get) to $352 at the top, reflecting differing views on how long Nvidia can sustain its extraordinary growth rate as artificial intelligence (AI) infrastructure spending matures.
The earnings outlook explains much of the optimism. For the fiscal year ending this month, analysts expect earnings per share (EPS) of $4.69. This represents 56.9% year-on-year growth. Just let that sink in.
On those numbers, the stock trades at around 40 times forward earnings. This is a pretty demanding valuation by almost any historical standard. However, what makes Nvidia unusual is the speed at which that valuation’s expected to compress.
By January 2027, consensus EPS jumps to $7.57, implying another 61% year-on-year increase and pulling the forward price-to-earnings (P/E) down to 24.8 times. In effect, Nvidia’s investment case increasingly rests on earnings growth doing the heavy lifting, rather than further multiple expansion.
If AI data centre demand, enterprise adoption, and software monetisation continue to scale as expected, today’s valuation may look far more reasonable in hindsight — though any slowdown would likely be punished sharply by the market.
Is it really worth $253?
For years I wouldn’t have questioned analysts from major financial institutions, but more recently I’ve learned that some of them simply aren’t much cop. So what do the headline figures tell us about this stock?
Well, at $253, the stock would be trading around 53 times forward earnings. And the price-to-earnings-to-growth (PEG) ratio would move from around 1.06 to 1.4, bringing it closer in line with the industry average.
However, the information technology sector average is actually 1.66 and Nvidia’s five-year average PEG’s 1.61. On both counts, Nvidia looks like it could be trading higher — or at the share price target — and not be considered overvalued on this metric.
Oddly, I think some of the discount reflects ongoing disbelief about Nvidia momentum rise. There’s talk of a bubble and circular financing worries. However, I just don’t see it. Because, to date, AI’s proven to be a genuine productivity technology, not a speculative concept searching for a use case.
Enterprises aren’t buying Nvidia’s chips to flip them on. They’re deploying them to reduce costs, automate workflows, speed up research, and build revenue-generating products. That’s a crucial distinction.
The bottom line
Of course, Nvidia isn’t risk-free. A lot of the valuation’s based on growth expectations and it could underperform those for several reasons. This could include a peer stepping up or demand moving towards ASICs (Application-Specific Integrated Circuits) rather than Nvidia GPUs.
However, the current trajectory’s very strong and there’s no reason to doubt the forecasting. It also still looks cheap relative to peers and its own five-year average.
It’s certainly worth considering.
