Did the market misjudge NVIDIA? Valuation falls to a five-year low, the forward P/E is cut in half, and the threat from competition is being priced too aggressively

Mars Finance news: On July 25, according to market data from BIT (bit.com), Nvidia’s stock price is up only 10% this year. Against the backdrop of a 71% surge in the Philadelphia Semiconductor Index, it has become the most disappointing weighted stock in the sector. Morningstar analyst Brian Colello said that the current pricing around $212 implies that Nvidia will have almost no growth after 2027. Nvidia’s fair value is actually close to $280, about 16 times the expected sales for fiscal year 2029. Nvidia’s current EBITDA-based forward P/E is about 17x, far below the five-year average of 36x, and at its lowest range since July 2021. Nvidia’s rival AMD has a forward P/E of 53x, with a 142% gain year-to-date. Gabelli Funds fund manager John Belton said investors are chasing assets with the strongest supply-demand imbalances and undeveloped growth opportunities, and Nvidia currently does not meet any of these criteria.

Nvidia’s short thesis is that challengers are emerging in large numbers and that there is a scale ceiling. Startups such as SambaNova and Cerebras are rolling out their own chips; Google, Amazon, Meta, Microsoft, OpenAI, and Anthropic are all pushing self-developed plans; AMD’s first AI server rack system, Helios, is expected to ship later this year, directly targeting the Grace Blackwell and Vera Rubin series. Nvidia’s bulls believe Nvidia’s next fiscal year revenue is expected to grow 42% to $560B, and the year after that to increase another 23%, far exceeding AMD’s 2027 forecast revenue of only $78B. The valuation premium of more than double cannot be explained by growth-rate differences alone.

More importantly, Nvidia’s share in the inference chip market has actually increased. Its resilience through cycles has also been underestimated—once AI investment cools, many companies that have just started developing chips in-house may abandon self-development and revert back to the Nvidia ecosystem. Instead, an AI winter could hit Nvidia less than new chip design companies. Colello expects Nvidia’s fiscal year 2029 year-over-year growth rates for both revenue and adjusted EPS to exceed 45% annually, and believes the market has already overpriced competitive threats.