(Yahoo! Finance) - When you see the stock of the company at the epicenter of the AI boom trading at super-low valuations, it's cause to sit up in your seat.
That's where I am on Nvidia (NVDA) ahead of its much-anticipated earnings report on Wednesday. Call it a state of pre-earnings shock.
At less than 24 times estimated forward earnings, Nvidia is trading not far from its lowest price-to-earnings (P/E) multiple in five years. It's also well below its five-year average of roughly 38 times.
And as they say in showbiz: But wait, there's more (see charts below).
Nvidia's P/E ratio remains near the low end of its peers in Big Tech:
And going back farther, Nvidia's stock is trading on a P/E ratio at steep discounts to its nine-year median:
So the question here is, why does the stock trade at these "low" valuation levels?
It can be boiled down to three factors.
One, Nvidia's valuation has compressed despite record fundamentals because investors are repricing the duration of AI spending rather than questioning its existence.
Two, Nvidia is navigating a major transition from Hopper HGX systems to Blackwell chips — this brings near-term margin pressure that shows up in earnings growth rates.
An analysis by Yahoo Scout reveals Nvidia's earnings per share in fiscal year 2026 could grow 57% year over year. If that were to happen, it would be far slower than 2025's growth rate of about 145%.
The third factor is the law of large numbers, Evercore analyst Mark Lipacis explained.
"Nvidia's weight in the S&P 500 Index (^GSPC) is 7.4%, higher than allowed by the charters of many fund managers. So, while we expect Nvidia's fundamentals to be better than the broader market, there is a headwind to its P/E ratio caused by fund managers obligated to lower their stakes in the stock as it appreciates faster than the market," Lipacis said.
In the end, it will be an interesting Nvidia earnings day. Wall Street expectations are high, but the stock looks cheap. Any miss on those expectations, however, and one could definitely expect Nvidia's stock to get even cheaper.
By Brian Sozzi - Executive Editor
