Nvidia (NASDAQ:NVDA) stock’s long-term performance is still incredible. It’s been a dominant force in the semiconductor industry, revolutionising artificial intelligence (AI), gaming, and data centre technologies.
However, the stock has slumped amid concerns about slowing demand for its chips as more efficient AI models are developed and after President Trump’s market-shocking tariffs.
Valuation
I’ve argued for some time that Nvidia isn’t expensive. Its trailing price-to-earnings (P/E) ratio of 36.9 times is significantly higher than the sector median of 21.7 times, reflecting a 70.2% premium. However, the company’s earnings trajectory is strong given its central role in the AI revolution.
As such, the forward P/E ratios show improvement, with a projected 24.3 times for fiscal 2026. That’s a more modest 18.7% above the sector median but far below its historical five-year average of 47.7 times (-49%). These figures suggest that while Nvidia remains expensive relative to its peers in the near term, its valuation is compressing compared to its historical highs, and growth-adjusted metrics are positive.
The price-to-earnings-to-growth (PEG) ratio provides a more optimistic outlook, with a forward PEG of 0.69. This indicates strong growth potential relative to its price. The traditional benchmark for an undervalued stock is anything under one. But this PEG ratio is actually a 56% discount to the sector average. The P/E falls to 17 times for 2028.
‘Liberation Day’ fallout
Nvidia faces significant challenges stemming from President Trump’s so-called Liberation Day tariffs, which impose reciprocal taxes on imports from countries with claimed higher tariffs on US goods.
While semiconductors from Taiwan are exempt from these tariffs, Nvidia’s broader supply chain could still experience disruptions, increasing costs for raw materials and manufacturing. This exemption provides some relief, given Taiwan’s critical role in Nvidia’s chip production, but the tariffs still complicate logistics and threaten to raise operational expenses.
What’s more, the Chinese government may ban Nvidia’s H20 chips due to new energy-efficiency regulations aimed at reducing environmental impact in data centres. These restrictions jeopardise Nvidia’s $17.1bn revenue stream from China, which accounts for 13% of its total sales.
Furthermore, stricter US export controls have already limited Nvidia’s ability to sell advanced chips like the A100 and H100 in China, forcing the company to develop downgraded models such as the H20 — now also under threat.
Market sentiment
Market sentiment has plummeted in recent months. While the forecasts suggest that analysts remain optimistic about Nvidia’s long-term prospects in AI and accelerated computing, there will be some revisions to these forecasts. Sadly, I expect all of these revisions to be negative.
In my opinion, it may be too soon to consider Nvidia stock following the tariff announcement. Downward revisions to the forecast will hurt the share price more. Investors should monitor how the company navigates these challenges while waiting for clearer signs of stabilisation or improved valuation metrics before making a move. For now, I’m just holding my position. Market sentiment could get worse.
This post was originally published on Motley Fool
