Another quarter, another set of blowout Nvidia (NVDA +1.30%) earnings. However, the market seemed to shrug off the results of the world's largest company.
This is incredible because there has never been a multi-trillion-dollar company growing as large as Nvidia is, and there seems to be some hesitation to give Nvidia the premium valuation it deserves, even if all signs point to a strong future.
The reality is, Nvidia's stock is pretty cheap right now, and as the year progresses, I think the market will warm up to Nvidia's stock and send it much higher. If that occurs, then now is the perfect time to buy the stock, and investors may be surprised at where the stock price could be by the end of 2026.
Image source: Getty Images.
Nvidia's success will be tied to capital expenditure plans
Nvidia's GPU business success is almost out of its hands. Nvidia has consistently brought the best technology to market, and it's up to the artificial intelligence (AI) hyperscalers to decide how much money they are willing to spend next year on data center construction. This will drive Nvidia's success. While it may be frustrating for a company's own success to be largely out of its hands, the reality is that the AI hyperscalers are spending more than Nvidia's managers could ever have dreamed.
NASDAQ: NVDA
Key Data Points
Alphabet has already told investors that it expects a "substantial increase" in data center spending during 2027. Nvidia expanded that to all AI hyperscalers by informing investors that it expects data center spending to top $1 trillion in 2027. That's a major milestone, but Nvidia expects that spending to rise to $3 trillion to $4 trillion by 2030. With Nvidia's core market opportunity potentially rising 5 times from 2026 to 2030, there's huge room for growth with the stock.
Nvidia backed up its big talk with 85% growth in Q1 -- easily outperforming prior guidance. But where will that send Nvidia's stock by the end of 2026?
Historically, Nvidia's stock has reached 40 times forward earnings by the end of the year each of the last two years.
NVDA PE Ratio (Forward) data by YCharts
That may seem like an expensive valuation, but it makes sense once the calendar flips and new growth targets are revealed. If Nvidia can reach 40 times forward earnings by the end of 2026, that would allow it to rise 66% from today's levels. At Nvidia's recent $215 per share price, that would imply a stock price of $357 by the end of 2026.
If that happens, Nvidia is a no-brainer buy right now. I think that's exactly the case, and investors should load up on Nvidia stock before the market realizes that 2027 will be another strong year, thus warranting a higher earnings multiple.
