Nvidia’s stock is flashing a warning sign as valuation falls

Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomeInvestorNvidia’s stock is flashing a warning sign as valuation fallsNvidia’s shares are trading near the cheapest level in more than a decadeAuthor of the article:Nvidia CEO Jensen Huang attends the Q&A session with the media during Nvidia/Japan AI Ecosystem Reception in Tokyo on July 16, 2026. Photo by Philip FONG / AFP via Getty ImagesNvidia Corp.’s sinking stock valuation is sending a warning signal about the chipmaker’s prospects for maintaining its booming profit growth.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountAt less than 17 times profit expected over the next 12 months, Nvidia’s shares are trading near the cheapest level in more than a decade, according to data compiled by Bloomberg. The multiple is half what the stock commanded in 2025, when Nvidia’s revenue and profit growth was slower, and down from more than 25 times earnings estimates as recently as May.“The stock has de-rated pretty significantly, which suggests a healthy dose of skepticism that the company’s current earnings power is sustainable,” said Eli Horton, senior portfolio manager for thematic equities and durable growth equities at TCW. “The stock’s performance is surprising, given the backdrop of incredible fundamentals, but it tells you the market is expecting less than what the consensus is currently estimating.”Canada's best source for investing news, analysis and insight.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Investor will soon be in your inbox.We encountered an issue signing you up. Please try againNvidia’s discounted valuation persists even after the shares capped a five-day winning streak on Monday. The advance came amid a broader rebound in semiconductor stocks after AI leaders’ calls to slow development of the most advanced AI models spooked investors, sending the Philadelphia Stock Exchange Semiconductor Index, better known as the SOX, down nearly six per cent on Sept. 14.The index jumped 4.3 per cent on Monday, its best day since Aug. 4, after early signs of success for Meta Platforms Inc.’s new AI agent boosted optimism about chip demand.Even though there are plenty of worries about the broader outlook for spending on AI computing gear amid a backlash against data center construction and soaring interest rates, there are no signs that infrastructure investments are set to slow anytime soon.Nvidia’s revenue and net income are expected to jump 90 per cent and 99 per cent, respectively, in fiscal 2027, which ends in January. That’s up from 65 per cent growth for both metrics the year before. In its second-quarter earnings report last month, Nvidia projected that sales would expand 70 per cent in fiscal 2028, well above the 45 per cent growth that had been expected.Nvidia’s shares are up 22 per cent in 2026, a performance that ranks as the second-best among the Magnificent Seven technology giants after Apple Inc.’s 25 per cent gain. The advance pales in comparison to other semiconductor makers, however.The semiconductor index is up almost 76 per cent this year, led by memory chipmaker Micron Technology Inc. and Nvidia rivals Intel Corp. and Advanced Micro Devices Inc., which have each gained more than 180 per cent. Nvidia is the fifth-worst performer in the index, which is priced at 20 times estimated profit.The disconnect between Nvidia’s strong fundamentals and its stock valuation prompted chief executive Jensen Huang to declare that Nvidia is “the world’s first and only growth value stock.” He called the company “incredibly misunderstood” at a Goldman Sachs technology conference earlier this month.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.“Not only are we growing, we’re also capturing more at the same time,” he said.Part of the problem is that Nvidia’s profitability is under pressure, in large part due to rising costs for key components like memory chips. Nvidia’s gross margin was a whopping 75 per cent in the second quarter, but is projected to shrink to less than 72 per cent in the fourth quarter before rebounding in the coming quarters, according to the average of analyst estimates compiled by Bloomberg.Nvidia’s gross margin is a major factor holding its shares back, according to David Russell, global head of market strategy at TradeStation. He expects competition to intensify, especially as some of Nvidia’s biggest customers develop AI chips in-house. Meta Platforms Inc. recently touted its home-grown chips, and Alphabet Inc. has made a major business out of its own.“Companies want to reduce their reliance on Nvidia, so it is very conceivable its market position will weaken over time, and that means gross margins are more likely to go south than improve, which is a big problem for investors,” Russell said. “Multiples expand when companies are well positioned with potential to get better, and Nvidia doesn’t offer that.”Another issue is that Nvidia has become the highest profile member of the AI trade after a more than 1,600 per cent gain in its share price over the past four years made it the world’s most valuable company. Its sales have jumped from about US$27 billion in its fiscal year that ended in January 2023 to an estimated US$410 billion in the current year, fiscal 2027.“It is prudent to take a step back and ask whether all this spending is sustainable, because trees don’t grow to the sky,” said TCW’s Horton. “However, Nvidia’s multiple really seems predicated on a slowing in AI capex, which would have to come either on hyperscalers pulling back, or a regulatory framework that delays or shuts things down.”But neither of those scenarios seem likely, he said, which is making Nvidia shares look relatively attractive.“No one knows if the stock will work, but the setup is very compelling and I like the way the probabilities are stacked up,” he said. “If the question is whether the multiple will work in your favor by re-rating higher, or work against you, I’d definitely take the former. This seems like a very favorable multiple to have as an entry point.”With assistance from Subrat Patnaik and David WatkinsNotice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.