Is NVIDIA Becoming A Value Stock?
2025 has not been the year for the magnificent 7 (which consists of NVIDIA, Microsoft, Amazon, Apple, Alphabet, Meta Platforms and Tesla).
Last year, the market focused on the potential from the AI revolution and soaring revenue growth rates. This year, it’s been about the impact of a global trade war and a potential slowdown in economic growth.
NVIDIA hasn’t been exempt from the pullback in tech stocks, although it could be argued that it’s still the AI leader. Its dominant position in the GPU market, strong demand for its new Blackwell line of chips and introduction of its next generation chip lineup presents a compelling investment case.
Unfortunately, many growth stocks get pulled lower in a market correction, even those as successful as NVIDIA. The stock is down more than 11% year-to-date (through March 20th), which is nearly double the loss of the Nasdaq 100, but it may be time to reconsider whether or not NVIDIA has become undervalued again.
Let’s take a look at some of the numbers for NVIDIA and two of its magnificent 7 peers, Apple and Microsoft. (source: Seeking Alpha). While they obviously have different business models and exposures, they all fall under the mega-cap tech umbrella and are keenly interested in growing their AI capabilities.
Based on forward-looking earnings estimates for all three companies, respectively, each stock trades at nearly the same forward P/E multiple (which considers the current price of the stock against future earnings estimates over a 12-month period) of 26. That’s still a high number by historical standards, but not egregious and likely justifiable given we’re still in the early innings of the AI boom.
But company fundamentals are what set the three companies apart.
Note:
EPS = earnings per share, or a company’s net income divided by the number of shares outstanding
Free Cash Flow = the amount of cash a company generates from its operations after accounting for capital expenditures, such as equipment, buildings or other investments in the business.
Let’s start by looking at Apple.
Revenue Growth Rate: 5%
GAAP EPS Growth Rate: -1%
Free Cash Flow Growth Rate: 10%
Apple, of course, has had some stumbles with the launch of Apple Intelligence in its devices and has struggled with iPhone sales, especially in China. The low revenue, earnings and free cash flow growth rates reflect those challenges.
Now, let’s compare those numbers to Microsoft’s.
Revenue Growth Rate: 14%
GAAP EPS Growth Rate: 16%
Free Cash Flow Growth Rate: 11%
These growth rates look much better. Microsoft has been (and is planning to continue to be) one of the biggest spenders in the AI development space. While there have been some questions raised about whether or not that spend will ultimately be worth it in the end, Microsoft has clearly had success in the AI space up to this point.
However, those numbers pale in comparison to NVIDIA.
Revenue Growth Rate: 60%
GAAP EPS Growth Rate: 67%
Free Cash Flow Growth Rate: 68%
NVIDIA’s story has been remarkable. If there’s a downside to their story, it’s that they’ve had trouble keeping up with demand for their chips. That impacted margins in the most recent quarter, but it appears that production has largely been able to catch up. Continued improvement in the chip lineup should help keep demand steady for the foreseeable future.
If all three stocks are trading at roughly the same forward P/E ratio, which horse would you choose to hook your wagon to based on the company’s expected growth rate?
We feel that NVIDIA may have become undervalued following the recent tech stock correction. While the market’s expectation for near perfection in every aspect of operation could provide temporary headwinds, we think that the growth story is still compelling and it could be available at an attractive price.
If you’re looking for an easy way to add enhanced NVDA exposure to your portfolio, consider the GraniteShares 2x Long NVDA Daily ETF (NVDL).
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