Down 19%, Is It Time to Buy the Dip on Nvidia Stock?
Key Points
Nvidia's stock looks pricey based on its trailing P/E and P/S ratios.
However, its forward P/E and P/S ratios paint a very different picture, making the stock look undervalued.
Revenue from China was not factored into those projections, making them look even better.
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Artificial intelligence (AI) investors haven't had much to cheer about so far in 2026. Most major AI stocks are down, and some are way down.
Take Nvidia (NASDAQ: NVDA), for example. Shares of the AI chipmaking champion have fallen 19% from their October high, and in fact are nearing a six-month low:
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But even after that drop, Nvidia still has a current market capitalization of $4.07 trillion. Can the biggest company in the world still be "undervalued?" Evidence suggests it may be. Here's why it might be time to buy.
Expensive or not
Many investors assume that Nvidia is chronically overpriced. On the surface, this view seems to make sense. Its trailing price-to-earnings (P/E) ratio is 35.7, which is high by historical standards, and its trailing price-to-sales (P/S) ratio is 19.9, which is also high. Shares of Google parent Alphabet, for example, trade at a P/E of just 26.4 and a P/S of only 8.6.
Image source: Nvidia.
However, trailing revenue and trailing earnings present a skewed picture of an extremely high-growth company like Nvidia.
Don't forget, in Nvidia's most recent quarter, revenue was up a jaw-dropping 73% year over year, while per-share earnings almost doubled, up 98% year over year. For a company growing this fast, of course trailing metrics are going to look high because they're looking at outdated revenue and earnings numbers.
Nvidia's forward P/E and P/S ratios tell a different story. True, these are based on estimated revenue and earnings over the coming year, so they could be way off, but Nvidia has historically done a good job of not issuing overly rosy projections.
Nvidia's forward P/E is a mere 21.1, much lower than its trailing P/E of 35.7, and its forward P/S of 11.5 is likewise much lower than its trailing P/S of 19.9. However, even those estimates will look high if Nvidia brings in substantially more revenue than expected in the coming year. And there are signs it may be about to do just that.
A new revenue stream
In 2025, Nvidia stopped producing its H200 AI chip, which was designed to comply with Chinese export controls. This move cost the company an estimated $8 billion per quarter in revenue. However, reports indicate that not only has Nvidia begun producing the H200 again, it may also be working on a Chinese-friendly version of its Groq 3 AI inference chips.
Image source: Getty Images.
If these reports are accurate, Nvidia could be about to add an unexpected $32 billion -- or more -- per year back into its revenue stream, which wasn't previously included in its calculations. That would push the company's forward P/S ratio well below 11, and possibly into the single digits, and could even potentially drop its P/E ratio below 20.
Given Nvidia's explosive growth on both the top and bottom lines, those valuation metrics look tantalizingly low. Now does indeed look like a great time to scoop up Nvidia shares.
Should you buy stock in Nvidia right now?
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John Bromels has positions in Alphabet and Nvidia. The Motley Fool has positions in and recommends Alphabet and Nvidia. The Motley Fool has a disclosure policy.
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