Key Points
Nvidia is selling a lot of AI processors.
The company's top line continues to grow at a remarkable pace.
- 10 stocks we like better than Nvidia ›
Calling for any stock to double in a year is a huge ask. Calling for the largest company in the world to double is an even bigger expectation. However, I think Nvidia (NASDAQ: NVDA) is actually positioned to make this happen.
What would it take for Nvidia to double? Not a lot, it turns out.
Will AI create the world's first trillionaire? Our team just released a report on the one little-known company, called an "Indispensable Monopoly" providing the critical technology Nvidia and Intel both need. Continue »
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Nvidia is undervalued, compared to historical levels
Nvidia makes graphics processing units (GPUs), which have become the most widely used hardware for running and training artificial intelligence (AI) models. Demand for these units is off the charts, and with the AI hyperscalers continuing to buy as many as they can get their hands on, the future for Nvidia is bright.
According to analysts' projections, Nvidia is expected to grow its revenue by 70% to over $360 billion during its fiscal 2027 (which began on Jan. 26). Its profit margin is over 50%, so by the end of the year, Nvidia is expected to be the most profitable company in the world. (Alphabet currently holds that title.)
The big question regarding Nvidia is how long the AI infrastructure spending boom will last; there are multiple projections from consultancies and market research firms such as McKinsey and Company that estimate it will continue through at least 2030. For at least the next several years, then, it appears Nvidia's business will remain in great shape, and its products will continue to be in high demand.
Despite this bright outlook, its valuation is relatively low. Over the past two years, its stock has generally traded between 40 times and 50 times expected forward earnings. Now, it trades at about 22 times forward earnings.
NVDA Price-to-Earnings Ratio (Forward) data by YCharts.
All that it would take for Nvidia's stock price to double from here is for investors to revalue the stock back to 45 times forward earnings -- a perfectly reasonable valuation, considering the company's impressive growth rates. The problem is, Nvidia doesn't control sentiment -- the market does.
Right now, the market is feeling fairly negative about the outlook for the AI sector, and concerned about whether the companies involved will get the returns on investment they expect from their massive spending. However, the AI hyperscalers will likely continue to pour money into infrastructure at a torrid pace because all of them agree that the risk of underspending is far greater than overspending.
As a result, I think the market will come back around to Nvidia's stock throughout 2026, lifting it back toward a historically more normal valuation range. That could cause the stock to double, but even if it doesn't, I'm confident it's an excellent long-term buy now.
Should you buy stock in Nvidia right now?
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Keithen Drury has positions in Alphabet and Nvidia. The Motley Fool has positions in and recommends Alphabet and Nvidia. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
