When it comes to the artificial intelligence (AI) industry, no company is watched as closely as Nvidia (NVDA 1.28%). Over the last three years, the company's graphics processing units (GPUs) and its CUDA computing platform have become central pillars supporting generative AI development.
Nvidia has become so influential in the AI realm that its quarterly earnings reports have essentially turned into a yardstick for the overall health of the technology industry. While shares of Nvidia have soared by roughly 1,000% since the AI revolution really took shape -- making it the most valuable company in the world -- the stock is doing something pretty interesting right now.
Image source: Nvidia.
Taking a trip down memory lane
You may recall that Nvidia got off to a rough start in 2025. Around this time last year, a Chinese start-up called DeepSeek debuted its R1 chatbot, which quickly emerged as a rival to popular large language models (LLMs) such as ChatGPT.
DeepSeek claimed to have trained its model using older, less powerful Nvidia GPUs, but it appeared competitive with the latest offerings from OpenAI and others. Because of this, investors started to wonder if demand for Nvidia's new chip architectures would plateau or shrink.
Naturally, many investors bought into the narrative that AI developers might turn out not to need Nvidia's next-generation products as much as had been previously expected, and that big tech might therefore rein in its AI infrastructure spending. Around the same time as the DeepSeek story, President Donald Trump announced his comprehensive worldwide tariff plans.
The combination of Trump's heavy new import taxes and the apparent threat to Nvidia's business posed by DeepSeek led to intense selling pressure on the stock. Between the beginning of January and the end of April, Nvidia's share price plummeted by 19%, wiping out over $1 trillion in market value.
NASDAQ: NVDA
Key Data Points
What does a collapsing earnings multiple signal?
The table below summarizes Nvidia's forward price-to-earnings (P/E) multiple around the end of each fiscal quarter over the last 18 months.
| Metric | Fiscal Q3 2025 | Fiscal Q4 2025 | Fiscal Q1 2026 | Fiscal Q2 2026 | Fiscal Q3 2026 | Fiscal Q4 2026 (Current) |
|---|---|---|---|---|---|---|
| Forward P/E | 33.9 | 28.1 | 24.8 | 39.8 | 31.6 | 24.2 |
Data Source: Yahoo! Finance. Nvidia's fiscal 2026 Q3 ended Oct. 26, 2025.
Nvidia's current forward P/E is right in line with where it hovered last year following the stock's sell-off. As we now know, many of DeepSeek's claims about how its model was trained were either refuted or found to be irrelevant to the broader picture in the space. Nvidia's revenue and profit profile have only continued to expand over the last year.
The compression in Nvidia's earnings multiples last year was primarily driven by a fear-induced narrative. In my opinion, that same story could be playing out all over again now.
Perhaps the biggest bearish argument against Nvidia now is that rising competition in the AI accelerator market from Advanced Micro Devices, hyperscalers like Microsoft, Alphabet, and Amazon -- each of which is designing its own custom chips -- and Broadcom, which is partnering with hyperscalers to develop application-specific integrated circuits designed for AI workloads, will sap Nvidia's dominance in the data center parallel processor niche.
In light of the intensifying competitive landscape, Nvidia's forward earnings multiple has compressed to its lowest level in over a year. To me, this suggests that the market is pricing Nvidia as a maturing business with questionable growth prospects.
Where is Nvidia stock headed in 2026?
If the trends in the table above are any indication, however, history suggests that Nvidia stock is poised for a breakout this year. Let's consider how that might unfold.
The recent downtrend in Nvidia's forward earnings multiple could imply that the market's perception of the company has gradually shifted from a high-growth technology business to a more utility- or infrastructure-oriented platform generating considerable cash flow. In other words, Nvidia is no longer benefiting from one-off chip deals from big tech. Instead, the company is locking in multiyear visibility across the AI value chain.
Nvidia has quietly built a web of business featuring several multiyear partnerships across software, cloud computing, healthcare, telecoms, and aerospace -- including working with Anthropic, Intel, Nokia, Palantir Technologies, Eli Lilly, Archer Aviation, Amazon Web Services, and many more. The company should no longer be viewed as a cyclical semiconductor business. Instead, it has become the de facto computing platform provider for the AI infrastructure era.
As these deals begin to bear fruit, Nvidia's pricing power should return to the forefront, driving significant margin expansion and further earnings growth. I think this sets it up for meaningful valuation expansion not only in 2026, but through the rest of the decade as earnings estimates align with the realities of Nvidia's growth -- leading to increased buying activity from investors.
For these reasons, I see Nvidia as a no-brainer buy right now for investors with long-term time horizons.
