"Trees Don't Grow to the Sky": Bloomberg Sees a Warning Sign in Nvidia's Valuation

Nvidia's valuation based on price-to-earnings ratios has fallen to its lowest level in more than a decade, according to Bloomberg data. This is a warning sign regarding the company's prospects for sustaining rapid profit growth, the agency reports.

Nvidia is currently trading at a forward P/E ratio (price-to-forward-earnings ratio — Oninvest) of less than 17—a level close to its lowest in more than a decade, according to Bloomberg data. Since 2025, the multiple has halved, despite an acceleration in the company’s revenue and earnings growth. As recently as May, it exceeded 25 times forward earnings.

Nvidia’s valuation remains undervalued even after the recent rise in its stock price, the agency notes. Over the past five days, the stock has risen nearly 8% amid a broad recovery in the semiconductor sector after calls to slow down AI development spooked investors.

Nvidia’s stock rose 22% in 2026, posting the best performance among the “Magnificent Seven” tech giants after Apple (+25%). However, this rise pales in comparison to the success of other semiconductor manufacturers, Bloomberg notes. The Philadelphia Stock Exchange Semiconductor Index has gained nearly 76% since the beginning of the year. The leaders in growth were memory chip maker Micron Technology, as well as Nvidia’s competitors—Intel and Advanced Micro Devices—whose shares surged by more than 180%. Nvidia ranks fifth from the bottom in terms of returns on this index, which is traded based on a forward P/E ratio of 20, the agency points out.

“Stock valuations have fallen significantly, which suggests a healthy dose of skepticism regarding the sustainability of the company’s profit-generating potential,” noted Eli Horton, senior portfolio manager for thematic and sustainably growing stocks at TCW. He is surprised by the stock’s performance given its “incredible fundamentals.” “It suggests that the market is pricing in weaker expectations than analysts are,” Horton added.

The market remains deeply concerned about the outlook for AI hardware spending amid criticism of data center construction and rising interest rates. However, Bloomberg notes that there are no signs of a slowdown in infrastructure investment yet.

Nvidia’s revenue and net income for fiscal year 2027, which ends in January, are expected to jump by 90% and 99%, respectively, the agency reports. A year earlier, both figures rose by 65%. In its second-quarter financial report published in August, Nvidia forecast a 70% increase in sales for fiscal year 2028. The forecast was much better than analysts’ estimates—they expect a 45% increase.

Part of the problem is that Nvidia’s profitability is under pressure, largely due to rising costs for key components such as memory chips, Bloomberg notes. Nvidia’s gross margin was 75% in the second quarter, but according to the average analyst forecast compiled by Bloomberg, it is expected to decline to less than 72% in the fourth quarter before recovering in subsequent quarters.

Pressure on margins is a key factor holding back the company’s stock price, according to David Russell, global head of market strategy at TradeStation. He expects competition to intensify, especially as some of Nvidia’s largest customers are developing their own chips for artificial intelligence. Meta Platforms recently announced its in-house chips, while Alphabet (Google’s parent company) has built a major business around them.

“Companies want to reduce their dependence on Nvidia, so it’s quite possible that its market position will weaken over time. This means that gross margins are more likely to decline than to improve, and that’s a major problem for investors,” Russell said. Valuations rise when companies are in a strong position and have room for improvement, but Nvidia doesn’t offer that, he added.

“It makes sense to take a step back and ask whether all this spending is sustainable—after all, trees don’t grow to the sky,” noted Horton of TCW. Nvidia’s P/E ratio is largely tied to a potential slowdown in AI capital expenditures, which is likely to be triggered either by spending cuts from cloud computing giants, or the emergence of regulatory barriers capable of slowing down or halting the process, he explained.

However, none of these scenarios seems likely, which makes Nvidia's stock relatively attractive, he believes.

“No one knows if the stock will go up, but the setup is very convincing, and I like the odds. When it comes to whether the multiplier will work in your favor through an upward revaluation or against you, I would definitely choose the former. This looks like a very favorable multiplier for an entry point,” said Horton.

This article was AI-translated and verified by a human editor