Key Takeaways
- Nvidia, a top artificial intelligence (AI) stock, has been underestimated by the market despite its impressive earnings and financial metrics.
- The company’s shares have lagged the market in recent months, but its future prospects look promising, with potential for significant revenue growth in 2026.
- Nvidia’s valuation is reasonable, with a price-to-earnings (P/E) ratio close to its five-year low, making it an attractive investment opportunity.
- The company’s guidance implies significant revenue growth in 2026, with potential for net income to reach $194 billion, resulting in a low forward P/E ratio.
Introduction to Nvidia’s Current Situation
The market seems to have left Nvidia, a top artificial intelligence (AI) stock, for dead. Despite its impressive earnings and financial metrics, the company’s shares have lagged the market in recent months. As stated in the article, "Nvidia’s shares have dropped more than 2% over the last three months, while the S&P 500 is up more than 3%." This underperformance is surprising, given Nvidia’s history of success and its current market capitalization of $4.5 trillion. The company’s stock has risen 1,270% over the last five years alone, making it one of the most successful stocks in the market.
Nvidia’s Impressive Earnings
Nvidia’s most recent quarterly earnings, released in November, were "insanely good," with revenue hitting a record $57 billion, up 62% year over year. Net income was also at a record high of $31.9 billion. The company guided for Q4 revenue of $65 billion, which would be a 65% year-over-year increase. These impressive results, however, have been overshadowed by concerns about an "AI bubble" and potential competition from Alphabet’s TPU processors. As the article notes, "concerns about an ‘AI bubble’ and potential competition from Alphabet’s TPU processors seem to have outweighed these impressive results."
Why Nvidia Should Still Win in 2026
Despite the current market sentiment, Nvidia still looks like a strong investment opportunity. The company’s price-to-earnings (P/E) ratio currently stands at just 46, close to its five-year low of 32, and well below its five-year average of 76. The forward P/E ratio, which uses expected future earnings, stands at just 39.6. As the article states, "Nvidia’s guidance implies AI data center revenue of $188.8 billion in its 2026 fiscal year… just under half of total estimated 2025 AI capex spend." If 2026’s AI capex spend indeed hits $700 billion, total revenue for Nvidia’s upcoming fiscal year would land at about $372 billion, a roughly 75% increase.
Future Prospects and Valuation
The potential for significant revenue growth in 2026, combined with Nvidia’s current valuation, makes it an attractive investment opportunity. As the article notes, "if Nvidia’s profit margins remain constant, its net income in the coming year will be $194 billion, for a forward P/E ratio at today’s price of just 23.5." This is an "unbelievably low valuation for such a growth powerhouse," and should be a strong incentive for investors to buy Nvidia shares now. Wall Street’s consensus estimate for 2026 capital expenditures (capex) spending by AI hyperscalers is currently $527 billion, but research by Goldman Sachs suggests $700 billion as a more realistic figure. This potential for increased spending on AI capex could drive significant growth for Nvidia in the coming year.
Conclusion
In conclusion, Nvidia, a top artificial intelligence (AI) stock, has been underestimated by the market despite its impressive earnings and financial metrics. The company’s shares have lagged the market in recent months, but its future prospects look promising, with potential for significant revenue growth in 2026. Nvidia’s valuation is reasonable, with a price-to-earnings (P/E) ratio close to its five-year low, making it an attractive investment opportunity. As the article states, "don’t be fooled" by the current market sentiment, and consider investing in Nvidia shares now. With its strong growth prospects and low valuation, Nvidia is a stock that could potentially soar in the coming year.
https://www.fool.com/investing/2026/01/13/artificial-intelligence-ai-stock-wall-street-nvda/
