Think Nvidia stock is expensive? This chart might change your mind.

Despite the recent decline, Nvidia (NASDAQ: NVDA) The company’s shares have seen a dramatic rise, gaining more than 600% since the beginning of 2023. The company’s market capitalization has increased from $360 billion to $2.5 trillion during this period, the fastest rate of value creation in the history of the stock market.

But is that justified? Some Wall Street analysts believe that Nvidia’s stock is overvalued, and they may be right in the short term, based on its price-to-earnings (P/E) ratio. The P/E ratio is calculated by dividing a company’s share price by its earnings per share (EPS), and it’s one of the most commonly used valuation metrics among investors.

This Nasdaq-100 The index, which includes Nvidia and all of its big tech companies, is trading at a P/E ratio of 30.7. Nvidia shares are trading at a P/E ratio of about 58 based on trailing-12-month earnings per share of $1.80, making them almost twice as expensive as the index.

Based on these numbers alone, Nvidia stock is undoubtedly expensive. But the company is growing so quickly that the picture changes completely if we look just a year into the future. Wall Street estimates that Nvidia will generate $3.74 in earnings per share in fiscal 2026 (which begins January 30, 2025), making its stock even cheaper than the Nasdaq-100 going forward:

Nvidia’s data center chips are key to the development of artificial intelligence (AI), and while competition is slowly emerging, the company has built a significant technological advantage. Data center revenue jumped 427% in the last quarter, and demand is not expected to slow down anytime soon.

Therefore, for investors with an investment horizon of at least a few years, Nvidia shares may now be a bargain.

Is it worth investing $1000 in Nvidia now?

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Anthony Di Pizio has no position in any stocks mentioned. The Motley Fool has a position in Nvidia and recommends it. The Motley Fool has a disclosure policy.

Think Nvidia stock is expensive? This chart might change your mind. was originally published by The Motley Fool