Nvidia Shares Show Decade's Cheapest Valuation Amid AI Spending Doubts
Despite record market value, Nvidia's stock trades at its lowest multiple of expected earnings in years as concerns grow over the sustainability of AI infrastructure spending.
Nvidia, now the most valuable company in stock market history with a $5.4 trillion price tag, is experiencing a significant de-rating of its shares, trading at valuation multiples not seen in over a decade. This shift comes as investors question the long-term growth trajectory of AI infrastructure spending amid rising borrowing costs.
At $224 per share, Nvidia's stock is trading at less than 17 times the earnings investors anticipate for the coming year, according to Bloomberg data. This multiple is the lowest since 2016 and represents a halving from its value a year ago, a period when the company's revenue and profit growth were slower.
The tech giant's shares have surged on the back of high demand for its advanced microchips, which are critical to the artificial intelligence revolution. However, this rapid valuation adjustment, led by CEO Jensen Huang, reflects a growing investor unease with the debt-fueled expansion of AI infrastructure, including costly data centers.
Stephen Yiu, of fund manager Blue Whale, an early Nvidia investor, noted that a company's market value should reflect its long-term earnings power. He pointed out that Nvidia's profits, which reached $120 billion last year, have grown faster than its share price, suggesting potential for further stock appreciation. "AI is here to stay and Nvidia will remain a market leader within that," Yiu stated, though he acknowledged that the company's growth rate of 50% annually is unlikely to be sustained indefinitely. "The short answer is no," he added regarding continuous high growth.
Yiu also cited increasing competition from less expensive Chinese rivals as a factor that could erode Nvidia's substantial profit margins and slow earnings growth. Despite these concerns, Nvidia remains a top ten holding in Yiu's £2.5 billion Blue Whale Growth Fund. He emphasized that the firm is "not writing them off" and that Nvidia is still expected to maintain its market leadership in the AI sector. The current valuation suggests that, despite its monumental market capitalization, Nvidia's stock may represent a relatively cheaper investment opportunity compared to its recent history.