Is The Market Underpricing NVIDIA Stock?

NVIDIA (NVDA) stock trades at 28.6 times the last twelve months of profit, well below its three-year average P/E of 42.8. The shares are only 2.7% below their 52-week high, yet the stock’s P/E is low by its own past. So is the market underpricing NVIDIA stock?

NVIDIA Stock Would Gain Without The Market Paying More

On these assumptions, NVIDIA stock would be worth about 55% more in three years. That is about 15.8% a year, even at a lower P/E than today’s. Sales grow 30% a year in the scenario, far below the 83% sales growth in the twelve months to fiscal Q2 2027. We also assume a lower P/E in year three, because growth slows in the scenario.

The table below sets today’s figures against the scenario three years out.

All of the gain comes from higher sales. Without the lower P/E and slightly lower margin we assume, the gain would be larger still.

Most of NVIDIA’s sales come from data centers. In fiscal Q2 2027, data center sales were $89 billion of NVIDIA’s $96 billion in revenue. So the gain depends on NVIDIA selling more to data center customers.

Where Would NVIDIA’s Extra Sales Come From?

NVIDIA’s extra sales would come from two groups of data center customers. In fiscal Q2 2027, sales to the largest cloud companies were $49 billion, up 13% from the quarter before. Sales to all other data center customers were $40 billion, up 25% from the quarter before. Management expects those other customers to become roughly half of the data center business.

NVIDIA began shipping its new Vera Rubin systems in August 2026. Management says each gigawatt of Vera Rubin capacity is a $40 billion revenue opportunity. With NVIDIA’s older Hopper systems, the figure was roughly $18 billion.

On the fiscal Q2 2027 call, management gave its first full-year view for fiscal 2028. That view has revenue growing much faster in fiscal 2028 than the scenario’s 30% a year. But that view covers one year, while the scenario holds one pace for three. Management expects supply to stay a bottleneck at least through fiscal 2028. On the same call, management lowered its gross margin outlook because memory prices rose more than it expected.

What Happens To NVIDIA’s Upside If Its Margin Slips?

NVIDIA’s upside falls most if its margin slips and much less if sales grow a little slower. In the table below, one assumption changes at a time.

The biggest drop comes if NVIDIA’s net margin returns to its three-year average. Net margin is the share of sales NVIDIA keeps as profit.

All of the gain comes from sales, but the gain is most exposed to the margin. Everything else unchanged, three years of owning the stock would return nothing only if the net margin fell to 39%. That would be a fall of more than a third from today’s net margin. That level would still be above the 32% NVIDIA earned three years ago.

NVIDIA stock would not need a higher P/E to gain on these assumptions. The gain comes from selling more data center systems at close to today’s margins. The case stays intact while NVIDIA keeps its margin close to today’s level despite higher memory prices. Customers also have to keep buying Vera Rubin. If NVIDIA’s margin falls back toward its level of three years ago, the stock becomes a much riskier bet.

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