Key facts
- Nvidia's stock valuation decline suggests potential challenges in sustaining profit growth.
- The company's price-to-earnings ratio for expected profits over the next 12 months has dropped to less than 17 times.
- Nvidia's share price increase in 2026 was 22%, ranking second among the US stock 'Magnificent Seven'.
- The Philadelphia Semiconductor Index rose 76% over the same period.
- Nvidia's gross margin is expected to bottom out at 71% to 72% in the fourth quarter.
- Jensen Huang stated Nvidia is 'seriously misunderstood' and is 'the world’s first and only growth value stock'.
Nvidia Corp.'s stock valuation has come under pressure, raising concerns about the chipmaker's ability to sustain its impressive profit growth. The decline in Nvidia's market capitalization signals potential challenges for a company at the forefront of the semiconductor industry, particularly in artificial intelligence and gaming sectors.
According to SignalPro AI Analysis, Nvidia's declining stock valuation suggests potential headwinds for its future profit growth, which could lead to increased selling pressure in the short term. The market is likely to experience a moderate negative impact as investors react to the warning signals.
As of mid-September, Nvidia's price-to-earnings ratio for expected profits over the next 12 months has dropped to less than 17 times, approaching its lowest level in more than a decade. This multiple is half of the 2025 level and significantly lower than the valuation above 25 times in May. This valuation contraction is notable given Nvidia's consistent revenue and profit beats in recent quarters.
Eli Horton, Senior Portfolio Manager at TCW, commented that the magnitude of this valuation "de-bubbling" reveals significant market skepticism about the sustainability of the company’s current profitability. He noted that the stock's performance is surprising given the strong fundamental backdrop, indicating lower market expectations than the general consensus among analysts.
For fiscal year 2026, Nvidia reported full-year revenue of $215.9 billion and GAAP net profit of $120.07 billion. In the second quarter of fiscal 2027, revenue hit $96.2 billion, with net profits doubling to $59.7 billion and a gross margin of 75%. Management provided revenue guidance of $108 billion for the third fiscal quarter of 2027, an 18.7% increase from the previous quarter's guidance.
Nvidia's share price increase in 2026 has been 22%, trailing behind the Philadelphia Semiconductor Index's 76% rise and other semiconductor peers. Nvidia CEO Jensen Huang expressed dissatisfaction with this divergence, stating at a conference that Nvidia is "seriously misunderstood" and is "the world’s first and only growth value stock."
Nvidia's profitability pressure is largely attributed to rising costs of key components, particularly memory chips. The company disclosed that its gross margin would gradually decline from 75%, expected to bottom out at 71% to 72% in the fourth quarter of fiscal 2027, and stabilize at 72% to 73% in fiscal year 2028. Huang stated the company has "decided to rip off the Band-Aid and reset market expectations for gross margin."