Nvidia (NVDA -0.18%) investors have been very happy in recent years. Since 2020, shares have increased in value by roughly 1,500%. That meteoric rise has been fueled by the AI revolution. With a leading market share for AI GPUs, Nvidia has become one of the market's favorite AI stocks.
Think it's too late to profit? Think again. According to some metrics, Nvidia shares remain surprisingly cheap.
Nvidia stock is still cheap according to these metrics
With a $3.5 trillion market capitalization, Nvidia stock looks expensive according to its price-to-sales ratio. Shares currently trade at 24 times sales -- a premium multiple for such a large business. But on an earnings basis, the situation changes. Shares trade at 46 times trailing earnings. That's still a notable premium, but given that the company is growing sales by more than 50% annually, the stock trades at 33 times next year's earnings.
NVDA Revenue Growth Estimate for Current Fiscal Year data by YCharts
After factoring in a few years of rapid growth, Nvidia's stock actually starts to look fairly cheap, especially if it can maintain annual growth rates in the heavy double digits. The artificial intelligence market -- Nvidia's fastest-growing end market -- is expected to grow by more than 30% annually over the next decade. So sustained high growth rates could very well be possible.
Image source: Getty Images.
There are some risks to be concerned about going forward. Nvidia currently has a 90% market share for GPUs designed for artificial intelligence purposes. Competition will be heavy in the years to come, potentially slowing revenue growth. Plus, the company boasts the highest gross margins in the industry. Increased competition could hurt pricing, leading to lower profits and a disconnect between sales and earnings growth.
Still, Nvidia stock isn't nearly as expensive as it first appears. For investors willing to hold long term and amortize the upfront premium over a decade-long holding period, there's still plenty of money to be made with this promising AI stock.
