Nvidia (NVDA 1.53%) has clearly been the single biggest winner thus far in the nascent artificial intelligence (AI) age. Its powerful graphics processing units have benefited from incredible demand as hyperscalers look to build out their technical infrastructure. No company can afford to get left behind, which has led to rapid revenue growth for Nvidia.
It's not a surprise that this top AI stock has surged 1,230% in the past five years (as of Dec. 15). After such a monumental gain, and with a market cap of over $4.3 trillion, is it too late to buy Nvidia shares?
Image source: Nvidia.
Is Nvidia stock undervalued?
Even with such an impressive track record, it's easy to believe that this stock is still undervalued. Nvidia shares trade at a forward price-to-earnings ratio of 23. For comparison's sake, the S&P 500 trades at a multiple of 22.3.
Nvidia's net income is projected to increase at a compound annual rate of 43% between fiscal 2026 (ending January 2026) and fiscal 2028, according to Wall Street estimates. That kind of projection means that it's not too late to buy shares, although returns going forward won't mimic the past.
NASDAQ: NVDA
Key Data Points
Focus on the long term
The most obvious risk investors should be mindful of is a possible downturn in the AI market, which could pressure demand and revenue for Nvidia. This revolutionary technology continues to show promise, but so much capital has quickly flowed into the industry that a slowdown wouldn't be surprising.
That's why it's critical that prospective investors maintain a five- or 10-year time horizon as part of their investment thesis.
