This might sound crazy but I’ve been buying Nvidia (NASDAQ: NVDA) stock recently. I’ve been adding to my holding – which I initiated back in 2021 near $20 – around the $215 level.
The reason I’ve been buying is that I actually believe that Nvidia is under-appreciated at the moment. Let me explain…
Growth at an amazing price
Nvidia continues to grow at an unbelievable rate despite the fact that it’s now a $5trn company. Last quarter, revenue came in at $81.6bn, up a whopping 85% year on year.
Now, if a small or mid-cap company was growing at that kind of rate, it would probably have a price-to-earnings (P/E) ratio of somewhere between 50 and 100, or maybe even higher. Nvidia’s P/E ratio, however, is only 17 looking at the earnings forecast for next financial year.
That earnings multiple is below the US market average. In other words, Nvidia is cheaper than the average US stock.
That makes no sense to me. To my mind, investors are not fully appreciating the growth story here.
Left for dead in 2026
Another reason I believe the shares are under-appreciated is their year-to-date performance. This year, they’re ‘only’ up about 17%.
Obviously, that’s a decent gain in less than six months. But compared to the gains generated by other chip stocks, it looks lousy.
Marvell, for example, is up about 270%. Arm, meanwhile, is up 260%.
Relatively to other chip stocks, Nvidia has been a laggard this year. I think investors have been distracted by other exciting names in the AI space and forgotten about the huge potential here.
Trading well below price targets
One other thing worth pointing out is that the stock is trading well below most analysts’ price targets. Recently, many analysts have increased these, with most going to $300 or higher.
One firm, Baird, even has a $500 target. The fact that Nvidia is so far below these targets suggests to me that it’s underappreciated.
Huge growth potential ahead
Of course, there are no guarantees that Nvidia will continue to grow at such a prolific rate (there are risks around competition from rivals). I certainly don’t expect it to continue growing at 85% year on year.
But I do believe it has a lot of growth potential ahead. For a start, analysts believe that the hyperscalers are going to spend over $1trn on AI infrastructure next year – this should benefit Nvidia, but do note that this level of spending isn’t guaranteed.
Second, the company is expanding into the CPU market to take on the likes of Intel and AMD (CPUs are important for agentic AI). It believes this could be a $200bn opportunity.
Third, we are really only in the early stages of the AI revolution. Looking ahead, we can expect to see things like self-driving cars and humanoid robots (physical AI) and Nvidia’s hardware is likely to be fundamental to these technologies.
I’m ready for the next move up
Putting this all together, my view is that Nvidia is likely to experience another move higher in the near future. That’s why I’ve been buying more shares recently.
There are no guarantees that it will climb from here, of course. But at current levels, I believe it’s worth a closer look.
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Edward Sheldon owns shares in Nvidia
