For a long time, the last description most people would use to describe Nvidia (NVDA -3.01%) was “cheap.” Some still wouldn’t describe the stock with that term. For example, NYU finance professor Aswath Damodaran, known as the “Dean of Valuation,” thinks Nvidia remains overvalued by roughly 23%.
However, Nvidia is the second-cheapest “Magnificent Seven” stock right now based on one key valuation metric. Is the stock a no-brainer buy?
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Taking Nvidia down a peg (in a good way)
If we only considered Nvidia’s trailing 12-month price-to-earnings ratio of 35.5, the stock would seem quite expensive. The chipmaker’s trailing P/E multiple is the second-highest in the Magnificent Seven, trailing only Tesla with a sky-high P/E ratio of 118.4.
Looking to earnings over the next year makes Nvidia’s valuation much more palatable. Its shares trade at roughly 23.3 times forward earnings. Within the Magnificent Seven, only Google parent Alphabet and Facebook parent Meta Platforms have lower forward earnings multiples.
But peering even further into the future makes Nvidia appear even more attractive. The stock’s price-to-earnings-to-growth (PEG) ratio, which is based on analysts’ earnings growth projections over the next five years, is a low 1.02. Nvidia is running neck-and-neck with Meta for the lowest PEG ratio. Meta’s PEG ratio is only a hair lower at 1.01.
Why Nvidia’s valuation is so low
The obvious reason why Nvidia’s PEG ratio is so low is that the stock has fallen sharply. Nvidia’s share price is now down more than 30% below its previous high set early in 2025. This steep decline is due to several factors.
In January, Chinese artificial intelligence (AI) company DeepSeek’s introduction of a powerful large language model (LLM) developed at a low cost raised concerns about the future demand for Nvidia’s expensive GPUs. President Trump’s tariffs caused a major sell-off of stocks, with tech stocks such as Nvidia getting shellacked. Most recently, U.S. restrictions on exports of Nvidia’s H20 AI chips to China resulted in the company taking a hit of $5.5 billion.
But a lower share price is only one factor behind Nvidia’s low PEG ratio. The other key ingredient is strong earnings growth expectations. Despite worries about increased competition and the Trump administration’s trade policies, many Wall Street analysts still think Nvidia will continue to deliver exceptional earnings growth.
Nvidia’s largest customers, including several of its Magnificent Seven peers, remain committed to investing heavily in AI. Nvidia’s GPUs are still the most powerful chips for powering AI models, especially with the launch of its new Blackwell platform.
While AI is Nvidia’s primary growth driver, it isn’t the only one. CEO Jensen Huang believes that the shift from general-purpose computing to accelerated computing presents a $1 trillion opportunity for his company.
Is Nvidia stock a no-brainer buy?
With Nvidia nearly tied for the lowest PEG ratio among the Magnificent Seven stocks, is it a no-brainer buy? I wouldn’t go that far.
It’s hard to say that no thinking is required to buy a stock when a prominent valuation expert such as Damodaran believes the stock can go significantly lower. Wall Street’s five-year earnings growth projections could prove to be overly optimistic. The uncertainty and fears of a recession created by the Trump administration’s tariffs also raise legitimate concerns about investing in Nvidia right now.
That said, a stock can be a good pick even if it’s not a no-brainer pick. I think Nvidia falls into this category. My view is that AI adoption isn’t going to taper off. Although other companies will develop competitive AI chips, I don’t expect them to overtake Nvidia’s GPUs anytime soon. Nvidia will also almost certainly continue to roll out even more powerful GPUs.
If you’re a long-term investor, I think Nvidia’s sell-off presents an excellent buying opportunity. This AI company just might be the most magnificent choice among the Magnificent Seven right now.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Keith Speights has positions in Alphabet and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, Nvidia, and Tesla. The Motley Fool has a disclosure policy.
