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The polls haven't even closed this Election Day, but one early winner is being named - Nvidia (NVDA), the artificial intelligence (AI) chip giant. Earlier today, the newly named Dow Jones Industrial Average ($DOWI) constituent once again edged past Apple (AAPL) to become the world's largest company by market cap, with NVDA's $3.43 trillion tally comparing to AAPL's $3.38 trillion.
As the two tech giants seem poised to keep jockeying for position in the short term, it's worth considering one bold proclamation that recently turned heads across Wall Street. Speaking at a conference last week, SoftBank (SFTBY) CEO Masayoshi Son declared that Nvidia, despite its global scale, is still "undervalued."
His reasoning? The pursuit of artificial superintelligence will require "hundreds of billions of dollars" in investment, with Nvidia positioned at the very heart of this technological transformation.
The semiconductor giant's meteoric rise has already been nothing short of extraordinary, with its stock price surging more than 858% since the beginning of 2023, largely fueled by robust demand for its market-leading AI chips. Yet, according to Son, whose company owns a majority stake in chip designer ARM Holdings (ARM), this might be just the tip of the iceberg.
This remarkable statement raises an intriguing question: How can a company that has already achieved such stratospheric valuations still be considered undervalued? Or, not to put too fine a point on it: Is it too late to buy NVDA stock now?
The answer may lie in understanding not just where Nvidia stands today, but in comprehending the unprecedented scale of the AI revolution that's unfolding – a transformation that could reshape the entire technological landscape as we know it.
Nvidia's Current Market Standing
Nvidia's current market position reads like a Cinderella story of success in the technology sector. The stock was trading below $5 per share as recently as 5 years ago, and is now the most valuable company in the world (albeit intermittently). This astronomical valuation comes after a series of remarkable milestones throughout 2024, including a strategic 10-for-1 stock split completed in June 2024 to remove the comma from its share price.
The company's stock performance has been nothing short of extraordinary, with NVDA shares surging approximately 182% year-to-date. The stock set a new all-time intraday high of $144.42 in late October.
The numbers behind this growth are equally impressive. In its most recent earnings report for Q2 FY2025, Nvidia posted record quarterly revenue of $30.0 billion, marking a 15% increase from the previous quarter and an astounding 122% jump year-over-year. The company's data center segment, which houses its AI-related products, generated a record $26.3 billion in revenue, up 154% from the previous year, while gaming revenue reached $2.9 billion, showing a 16% year-over-year increase.
From a valuation perspective, Nvidia currently trades at a forward price/earnings (P/E) ratio of 47.62, significantly higher than the sector average of 23.94. While this might raise eyebrows, it's worth noting that the company's growth has also consistently exceeded expectations.
With its focus on growth, Nvidia maintains a modest dividend program, paying $0.01 per share quarterly with a yield of approximately 0.03%.
What's Behind SoftBank's Big Vision for Nvidia's Future?
Masayoshi Son, SoftBank's visionary CEO, recently stirred up the tech space by suggesting Nvidia's $3.43 trillion valuation might be just the beginning. His projection of superintelligence generating $4 trillion in economic value annually by 2035 sets the stage for Nvidia's ambitious moves in the AI sector.
Notably, Nvidia recently announced a groundbreaking collaboration with Reliance Industries to build AI infrastructure in India, emphasizing the importance of local development. Nvidia CEO Jensen Huang stated, "India should not export flour to import bread," highlighting the need for countries to develop their own AI capabilities.
Beyond the Reliance partnership, Nvidia is actively expanding its AI infrastructure ecosystem, as evidenced by recent strategic developments. The company-backed CoreWeave has secured a $650 million credit line, a significant move that demonstrates Nvidia's commitment to fostering growth in the AI sector beyond its core chip business. This development comes as CoreWeave prepares for an IPO, further highlighting the expanding opportunities in the AI infrastructure space.
On the supply chain front, Nvidia is strengthening its partnerships and diversifying its supplier base. The company has added Texas Instruments (TXN) and Infineon (IFNNY) as new suppliers, indicating efforts to bolster its supply chain resilience. This expansion is crucial for meeting the surging demand for AI chips and maintaining Nvidia's market leadership.
The industry impact of Nvidia's dominance is evident in the performance of its partners. Taiwan Semiconductor Manufacturing (TSM), a key manufacturing partner for Nvidia, reported surging September revenue due to AI chip demand. This growth indirectly benefits Nvidia and reflects the strong demand for AI chips driving the industry forward.
Forecasting Nvidia's Trajectory
As Nvidia approaches its next earnings release on Nov. 20, product and technology developments remain at the forefront of Nvidia's strategy. Morgan Stanley reports a "quite strong" ramp-up of Nvidia's next-generation Blackwell platform, suggesting positive momentum for the company's AI computing architecture.
CEO Huang has also discussed next-generation AI with “reasoning” capabilities, although implementation will depend on computing cost considerations. These advancements underscore Nvidia's continued leadership in AI innovation.
Analysts predict earnings of $0.70 per share for the current quarter, representing an 84% year-over-year increase. For the fiscal year ending January 2025, expectations are even higher, at $2.66 per share - a significant 125% jump from the previous year. These projections underscore Nvidia's strong position in the rapidly expanding AI sector.
Nvidia's operational efficiency also remains a key strength. Non-GAAP gross margins are expected at 75%, with full-year margins projected in the mid-70% range. This stability in profitability, coupled with anticipated growth, speaks to the company's effective management and market dominance.
The analyst community's sentiment is overwhelmingly positive. Of 42 analysts offering recommendations, 36 rate Nvidia a "strong buy," 2 a "moderate buy," and only 4 suggest a "hold." The mean target price of $151.36 indicates an 8.1% upside potential from Tuesday's close.
Conclusion
When SoftBank's Masayoshi Son calls Nvidia “undervalued” at $3.4 trillion, the numbers surprisingly seem to support his bold claim. Traditional valuation metrics might raise eyebrows, but they seem less relevant for a company that's become the fundamental infrastructure provider for the AI era.
With a projected AI industry value of $15 trillion by 2030, and Nvidia's expanding presence across gaming, automotive, enterprise software, and even robotics, today's valuation could indeed be just one of many milestones along the road. The question isn't whether Nvidia is expensive at $3.4 trillion; it's what price you're willing to pay for the company that's arguably building the foundation of computing's future.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
