1 Mind-Boggling Metric That Makes Nvidia Stock a Screaming Buy
Key Points
Nvidia sees huge growth ahead for the industry.
Nvidia doesn't always trade at this cheap a valuation.
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Nvidia (NASDAQ: NVDA) may be the world's largest company by market cap, but I still think it's a screaming buy at today's levels. The reality is that future growth hasn't been priced into its stock as much as some of its peers. In fact, the market isn't prepared at all for a 2027 where Nvidia sees strong growth.
If your investment horizon spans more than a few months (as it should for an individual investor), then I think there are few better buys in the market than Nvidia. I've got a single mind-boggling metric that makes Nvidia a screaming buy here, and there are plenty of gains to be had by buying the stock today.
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Nvidia is actually pretty cheap for its growth
For a fast-growing company like Nvidia, the forward price-to-earnings (P/E) ratio is the best way to value the stock. Nvidia trades for about 23.5 times forward earnings, which is historically pretty cheap over the past few years.
NVDA PE Ratio (Forward) data by YCharts
This is a fairly big deal, as the S&P 500 (SNPINDEX: ^GSPC) trades for 22 times forward earnings. This conveys to investors that once this year's earnings growth is accounted for, Nvidia should be priced as a market-average stock.
But Nvidia is anything but average.
During its past quarter, Nvidia's revenue growth was a jaw-dropping 85%. Next quarter, Wall Street analysts expect 96% growth. For next year, they project 41% revenue growth. None of that is priced into its stock. Otherwise, it would be trading for a much higher valuation level than it is today. As a result, I believe Nvidia's stock is a screaming buy.
But 2027 won't be the end for Nvidia, either.
Nvidia is easily the most knowledgeable company in this industry, and interacts with its customers all the time to understand further demand so that it can properly set up its supply chains. While the AI hyperscalers plan to spend around $650 billion in capital expenditures this year, Nvidia projects that number to rise to $1 trillion in 2027. By 2030, Nvidia expected global data center capital expenditures to rise to $3 trillion to $4 trillion annually. That indicates several more years' worth of growth beyond 2027, making Nvidia a smart stock to load up on.
As the chart above shows, Nvidia doesn't always trade at these levels, and once 2027 projections start becoming clearer, don't be surprised to see Nvidia's stock run up as a result. By getting in early, you can maximize your potential returns.
Nvidia is due for a big run; don't miss your chance at market-crushing returns.
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Keithen Drury has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
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