Key Takeaways:
- The 2-Minute Valuation Model values Nvidia stock at $162 per share in 2 years.
- That’s a potential 56% upside from today’s price of $104.
- Nvidia leads the AI chip revolution with earnings-per-share expected to grow over 100% over the next 3 years.
- NVDA stock is trading at a historically low P/E multiple of 23x despite massive growth potential.
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Despite Nvidia’s dominant position in the AI chip market, the tech stock has pulled back significantly, creating one of the most compelling buying opportunities among growth stocks today.
NVDA stock trades over 30% below its all-time high, but its long-term growth story remains firmly intact.
Here’s why Nvidia could be the best AI stock to buy on the current market dip.
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What is the 2-Minute Valuation Model?
Three core factors drive a stock’s long-term value:
- Revenue Growth: How big the business becomes.
- Margins: How much the business earns in profit.
- Multiple: How much investors are willing to pay for a business’s earnings.
Our 2-Minute Valuation Model uses a simple formula to value stocks:
Expected Normalized EPS * Forward P/E ratio = Expected Share Price
Revenue growth and margins drive a company’s long-term normalized earnings per share (EPS), and investors can use a stock’s long-term average P/E multiple to get an idea of how the market values a company.
Why Nvidia Stock Looks Undervalued
Forecast
Nvidia is projected to see over 100% earnings growth over the next few years.
Normalized EPS is expected to increase from $2.99 in fiscal 2025 (ended in January) to $6.49 by 2028, representing a 29.4% annual growth over this period.
While annual growth is expected to moderate from the explosive 130% rate seen in fiscal 2025, Nvidia is still forecast to deliver 30%+ compound annual earnings growth over the next three years.
This is an exceptional performance for a company valued at a market cap of over $2.5 trillion.
This earnings growth for Nvidia stock is likely to be driven by:
- AI Dominance: Nvidia controls approximately 80% of the AI chip market, with its GPUs forming the backbone of most major AI infrastructures.
- Expanding Ecosystem: Beyond hardware, Nvidia is building a comprehensive AI software stack through CUDA and other developer tools, creating high switching costs.
- New Markets: Nvidia is expanding into automotive, robotics, and healthcare AI applications, creating additional growth vectors.
- Massive TAM: The total addressable market for AI chips is projected to reach $400 billion by 2027, giving Nvidia substantial room to grow.
View Nvidia’s full analyst estimates (It’s free) >>>
Is Nvidia Stock an Undervalued Buy?
NVDA stock has historically traded at an average forward P/E ratio of 42.6x over the past five years, with peaks above 70x during AI boom periods.
Today, Nvidia trades at just 23x forward earnings, which is near its five-year low. This represents a significant discount to its historical average, especially considering its leadership position in AI computing and continued strong growth prospects.
For our valuation, we’ll use a conservative 27x forward P/E multiple, which is below the historical average but slightly above the current multiple.
Fair Value of NVDA Stock
Using our 2-Minute Valuation Model and applying a conservative approach:
- Conservative 2027 EPS estimate: $6
- Conservative forward P/E multiple: 27x
Expected Normalized EPS ($6) * Forward P/E ratio (27x) = Expected Share Price ($162)
The 2-year expected NVDA stock price we would get from this valuation is $162 per share.
With NVDA stock currently trading at around $104, this implies a potential upside of approximately 56% over the next two years, or a 25% annualized return.
Keep in mind, this is just a valuation exercise, and we don’t know for sure what the stock’s price will be in the future.
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What is the Target Price for Nvidia Stock?
Analysts have an average price target of around $165 per share for NVDA stock, indicating they see about 60% upside for the stock from its current share price:
Risks to Consider
While our valuation suggests meaningful upside, investors should be aware of several risks:
- AMD, Intel, and various AI startups are ramping up efforts to challenge Nvidia’s dominance.
- Cloud giants account for a significant portion of Nvidia’s revenue.
- Potential antitrust and export control issues could impact future growth.
- Data center spending tends to be cyclical, which could create periods of slower growth.
TIKR Takeaway
Nvidia appears significantly undervalued at today’s prices, trading at a historically low multiple despite continued strong growth prospects. Its leadership position in AI computing, expanding software ecosystem, and entry into new markets provide multiple avenues for long-term growth.
With analysts projecting that the stock has a 60% upside today and our conservative model suggesting similar returns over two years, Nvidia stock appears to be a compelling opportunity for investors seeking exposure to the ongoing AI revolution.
Is Nvidia stock a buy over the next 24 months? Use TIKR to check the stock’s analyst price targets, growth forecasts, and see if the stock is undervalued today.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
