Nvidia's Valuation Drops to a Decade Low as Market Questions Earnings Sustainability
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Nvidia's forward P/E has dropped below 17× — a ten-year low, roughly half its May peak — even as revenue is set to nearly double, signaling deep market skepticism over how long AI-driven profits can last.
Fundamentals are booming — so why is the valuation at a decade low?
Nvidia's FY2027 revenue and net income are projected to grow 90% and 99% respectively, up from 65% growth in the prior fiscal year.
Yet the forward P/E fell from over 25× in May to under 17×. This means → the market does not believe current earnings growth is sustainable, and is pricing the stock well below analyst consensus.
TCW senior portfolio manager Eli Horton put it plainly: "Given fundamentals this strong, the stock's performance is surprising — it tells you the market's expectations are below current analyst consensus."
Why has gross margin become the biggest concern?
Q2 gross margin hit 75%, but analysts forecast it will narrow to below 72% in Q4 before any recovery.
The main drag: rising costs of key components such as memory chips. In plain terms = Nvidia earns a lot selling GPUs, but its input costs are climbing too, squeezing the profit margin.
TradeStation global strategist David Russell called gross margin the core factor capping the stock: "Multiples only expand when a company is well-positioned with room to improve — Nvidia doesn't have that right now."
Major customers are building their own chips — what does that mean for Nvidia?
Meta recently showcased its in-house AI chip. Alphabet has also grown its custom chip effort into a significant business line.
This means → Nvidia's largest buyers are actively working to reduce their dependence on it; competition will only intensify over time.
Russell's verdict is blunt: "Its market position will likely weaken over time, and margins are more likely to fall than improve."
The chip sector is surging — why is Nvidia lagging behind?
The Philadelphia Semiconductor Index is up nearly 76% year-to-date, led by Micron; Intel and AMD have each gained over 180%.
Nvidia's 22% gain ranks fifth from the bottom in the index. This reflects a broadening of capital flows away from the AI leader and into other parts of the semiconductor chain.
The SOX index trades at 20× forward earnings — actually above Nvidia's current multiple. In plain terms = the stocks that rallied hardest are now valued more richly than Nvidia, a sign the market is repricing the entire supply chain.
At this price, how does the risk-reward stack up?
Horton argues Nvidia's valuation already prices in a slowdown in AI capital spending — a scenario that would require hyperscalers to cut budgets or regulators to step in, neither of which shows clear signs today.
This means → if AI investment does not decelerate, the stock may be undervalued at current levels; Horton calls the risk-reward "quite attractive."
The key test: whether Q4 gross margin bottoms out and recovers on schedule — that will determine if the market's skepticism on earnings durability proves right or wrong.
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