Valuation drops to a ten-year low! Jensen Huang calls Nvidia the "world's first growth-value stock", but investors don't seem convinced

Nvidia's stock valuation has dropped to its lowest level in over a decade. Although the company's revenue and profits are still growing rapidly, the market's focus on whether its earnings growth can be sustained is increasing.

According to data compiled by Bloomberg, Nvidia's current price-to-earnings ratio has fallen below 17, about half the level projected for 2025, and significantly below May's figure of over 25. Meanwhile, the semiconductor sector has performed strongly overall, with the Philadelphia Semiconductor Index up nearly 76% so far this year, while Nvidia's rise during the same period is around 20%, ranking fifth from the bottom among index components.

At the Goldman Sachs Technology Conference earlier this month, Nvidia CEO Jensen Huang discussed the company’s market positioning. He called Nvidia "the world's first and only growth value stock," and stated that the company is "deeply misunderstood." Judging from recent valuation and stock price performance, investors are still watching whether Nvidia's current level of profitability can continue.

Fundamentals Remain Strong, Valuations Still Under Pressure

Financial data shows that Nvidia’s growth momentum remains strong. The company’s revenue is expected to increase by 90% year-on-year in the fiscal year ending January 2027, and net profit is estimated to rise by 99%, both exceeding the 65% growth rate of the previous fiscal year. In the second-quarter earnings report released last month, Nvidia also projected that sales would grow by 70% in fiscal 2028, well above the previous market expectation of 45%.

However, strong performance expectations have not been matched by a corresponding rally in the stock. Nvidia has risen about 22% so far this year, Apple is up about 25% in the same period, while Intel and AMD have both surged more than 180%.

Eli Horton, Senior Portfolio Manager for Thematic and Durable Growth Equities at TCW, noted that the sharp drop in valuation reflects the market’s doubts about whether Nvidia’s current level of earnings can be sustained. "Given the strength of the fundamentals, the share price performance is surprising, but this suggests that market expectations are still below the current analyst consensus."

Gross Margin Under Pressure as Competitive Landscape Evolves

Aside from valuation changes, profitability itself is also in the market spotlight. According to average analyst forecasts compiled by Bloomberg, Nvidia’s gross margin in the second quarter is around 75%, expected to fall to below 72% in the fourth quarter, with a gradual recovery anticipated thereafter. Rising costs of key components, such as memory chips, are one factor putting pressure on margins.

David Russell, Global Market Strategist at TradeStation, believes that changes in gross margin are among the most important factors affecting Nvidia's valuation. At the same time, customers developing their own chips could alter the competitive landscape. Meta Platforms and Alphabet are both advancing their own AI chips, and some major clients are seeking to reduce their reliance on Nvidia.

Russell stated, as customers adopt more alternatives, Nvidia’s market share and pricing power may encounter some pressure, which also increases the uncertainty around whether its gross margin can improve further. He believes whether valuation multiples can re-expand will depend on the company’s future earnings growth and shifts in the competitive environment.

AI Capex Remains Key Variable, No Obvious Short-term Slowdown Signals

Another area of market concern about Nvidia’s outlook is investment in AI infrastructure. As the scale of data center construction expands, the market is watching to see whether the currently high level of AI capital expenditure can be sustained. The high interest rate environment also increases funding costs for such investments.

Earlier this month, some figures in the AI field called for a slowdown in the development of the most advanced AI models, temporarily triggering a pullback in semiconductor stocks. The Philadelphia Semiconductor Index fell nearly 6% in a single day on September 14.

However, there are still no clear signals of a marked slowdown in AI infrastructure investment at this time. Meta’s new AI agents performed well in early trials, improving market expectations for AI chip demand and driving a 4.3% gain in the Philadelphia Semiconductor Index on Monday—the biggest single-day increase since August 4.

Horton believes Nvidia’s current valuation already reflects some expectation of a slowdown in AI capex. Further confirmation of this concern would require seeing hyperscale cloud providers sharply cut capex, or substantial regulatory policy shifts—neither of which has occurred so far.

Over the past four years, Nvidia’s share price has surged more than 1,600%, at one point making it the world’s most valuable company. Meanwhile, its revenue rose from about $27 billion in fiscal year 2023 to an estimated $410 billion in fiscal 2027. As Nvidia becomes one of the most iconic companies of the AI investment cycle, its earnings growth, gross margin trends, and customer demand continue to draw intense market attention.