Nvidia (NVDA -0.33%) has become one of the most important companies in the world, driving artificial intelligence (AI) development and creating loads of shareholder wealth in the process. However, there are signs the stock may be slowing down. It's beating the market this year, up 16.8% vs. 12.2% for the S&P 500, but that's nowhere near the gains it's delivered in the past.
At the current price, it trades at under 33.3 times trailing 12-month earnings, just off a 5-year low. Nvidia reports fiscal 2027 second-quarter (ended July 27) earnings on Wednesday, Aug. 26. Is now the time to buy?
Image source: Nvidia.
Why Nvidia is still on top
The results speak for themselves. Nvidia continues to dominate AI chips and infrastructure, and its growing revenue at a pace more akin to a young upstart. Revenue rose 85% year over year in the first quarter, topping guidance and expectations. The company is highly profitable, and it tends to beat on earnings.
Nvidia sits at the center of AI development, which is growing by leaps and bounds, and it's one of the main beneficiaries of AI spending from hyperscalers like Amazon, Alphabet, and Microsoft. These companies are expected to invest about $1 trillion globally in 2026 alone, according to Goldman Sachs.
Nvidia has done a fantastic job of constructing a long-term moat for its products, keeping the heavy hitters in its ecosystem. It's a lot more than chips these days, with complete AI development systems, including its CUDA programming platform and AI supercomputers that bundle chips into powerful compute units. This creates high barriers to entry for competitors.
It's constantly upping its game, launching ever-more powerful chips and platforms, such as the new Vera Rubin architecture, which is starting to ship. Most recently, Nvidia announced a deal with several financiers, including Goldman Sachs and Blackstone, to build fully functional data factories to rent out to clients, and it's providing funding for OpenAI to lease a data center in Ohio for 20 years.
Why is Nvidia stock cheap?
While a P/E ratio of 33.3 isn't objectively cheap, it's cheap comparatively for Nvidia stock, and it's cheap for a company reporting such high growth. However, on a price-to-sales basis, it's fairly expensive, trading at 21 times trailing 12-month sales.
NASDAQ: NVDA
Key Data Points
The stakes for Nvidia are also higher right now, which is what the market is concerned about. AI is growing rapidly, but it's also changing rapidly. While AI spend is expected to grow, dozens of disruptors are rolling out new and improved platforms that may be cheaper to run. What seems like a sure bet right now could look different a year from now.
Nvidia has been able to anticipate trends and pivot thus far, and it's still a great stock to own. However, it may not jump after earnings, and investors should only buy with an eye on the long term. I also wouldn't take a huge position at this point.
