“Nvidia is world’s most valuable company and cheaper than Hershey” made for a striking Bloomberg headline, capturing the peculiar reality that the company at the centre of the AI revolution now trades on a lower valuation multiple than a US confectionery group best known for its chocolate bars.
Nvidia has lost some $1 trillion in market capitalisation since peaking in May, with Apple now within striking distance of reclaiming the title of the world’s most valuable company.
More strikingly for valuation types, its forward price-earnings ratio has fallen to about 20 times earnings, depending on the measure used. That is roughly half its 10-year average, and Nvidia’s lowest valuation multiple in seven years.
The stock now trades broadly in the line with the S&P 500 and well below many of its mega-cap peers – especially Apple, a company with slower growth prospects but a long record of profitability, which trades on about 32 times estimated earnings.
READ MORE
Indeed, looking further out, Nvidia trades on less than 11 times 2029 earnings estimates.
The reason investors are cautious is such forecasts assume Nvidia can sustain today’s extraordinary levels of profitability.
Bank of America argues the market, assuming margin pressure and tougher competition, is already pricing in an “unjustified” 30-35 per cent earnings headwind over the next two years.
After years of being driven by AI optimism, then, Nvidia’s next move may depend on something much less glamorous and more old-fashioned: whether its actual earnings continue to outperform expectations.
