The Nvidia (NASDAQ: NVDA) stock price has been sliding since the start of the year. In March it dropped 13%. And we’re now looking at a 28% decline since a 52-week high set in early January.
It’s had one remarkable effect. The forecast Nvidia price-to-earnings (P/E) ratio for the current year has fallen as low as 25. And earnings growth forecasts could drop it even further by 2028, as low as 17.
That’s the kind of valuation that wouldn’t be out of place on the FTSE 100. Never mind for a high-flying Nasdaq tech stock. I mean, Tesla is still on a P/E over 100 despite its own recent falls.
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Valuation conundrum
Nasdaq valuations often seem to have little connection to the reality of underlying fundamentals. And short-term price levels can go almost entirely on headlines, momentum, and sentiment.
But looking at this P/E leaves me with an inescapable conclusion. I reckon either the market has got the price badly wrong, or analysts are seriously out with their forecasts. Or it might be some combination of the two.
It looks like it all hinges on how well Nvidia can maintain its market dominance. And some cracks are beginning to show.
Rules and regulations
US export rules already prevent Nvidia from exporting its new generations of processor chips to China, where a lot of the world’s artificial intelligence (AI) development is shifting. The older H20 chips are currently the big seller in that market.
And we’ve seen the dramatic progress that Chinese developers are making using them, after the DeepSeek AI model made headlines with its cheap and rapid training.
But now they might be under threat too. The Financial Times reports that Chinese regulators have issued energy-efficiency rules for the kinds of chips used in data centres. And that could impact H20 chip sales.
How soon, and how cheaply, might China be able to flood the world with its own advanced AI chips? The chances must surely be boosted by President Trump’s all-out trade war.
AI overspend?
Investors are worrying that today’s massive AI spend might be overheated and unsustainable. The big movers in the business are in a bind. If AI progresses as fast as the hype suggests, they surely can’t afford to miss out. But if the headlong rush should slow, well, at least everyone would be in the same boat.
While all this head-scratching is going on, analysts still seem confident in Nvidia’s future. The great majority are urging us to buy, with an average price target of $171. That’s a 55% premium on the price at the time of writing. And it would set a new all-time high for the stock.
It really does seem to be down to how well, and how quickly, the competition shapes up. Two or three years from now, will Nvidia still rule the roost or might it be just one of half a dozen AI chip makers sharing the market?
I don’t know the answer. But I reckon investors interested in AI should be considering Nvidia at today’s valuation.
