Nvidia Is Suddenly Outpacing the S&P 500. Expect That to Continue.
Key Points
Nvidia more than doubled its revenue year over year and anticipates 70% growth in fiscal year 2028.
Jensen Huang cited greater customer diversification when touting recent results.
Its revenue and net income growth have comfortably outpaced its stock gains, resulting in an attractive valuation.
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Nvidia (NASDAQ: NVDA) had a sluggish start to the year, but its rally ahead of earnings gained momentum when the company reported solid results. It's felt long overdue, but the chipmaker is once again outpacing the S&P 500 with a 23% year-to-date return.
Investors should expect Nvidia to continue beating the S&P 500, as it has done for many years. Strong financial results and the continuation of the artificial intelligence supercycle are two major reasons why.
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Revenue growth continues to accelerate
It's very hard to find a company that generates substantial revenue and can still deliver accelerating growth rates. The company earned $96.2 billion in its fiscal 2027 second quarter, representing a 106% year-over-year growth rate. Based on guidance, the chipmaker will soon bring in more than $100 billion per quarter.
All of those earnings also come with impressive margins. Net income more than doubled year over year, reaching $59.7 billion in the process. Nvidia has consistently shown that the AI supercycle is gaining momentum. People have called it a bubble for a while, but with Nvidia anticipating 70% year-over-year revenue growth in its fiscal 2028, the bubble concerns have become quiet murmurs.
Even the company's valuation is solid. It trades at a 25.4 forward P/E ratio and has a PEG ratio below 0.60. Nvidia's fundamentals are improving at a faster rate than its stock price, suggesting its valuation could become even more attractive when it reports earnings again later in the year.
Nvidia is the clear leader
Nvidia earns higher quarterly profits than most chipmakers generate in quarterly revenue. That gives investors an idea of how much market share Nvidia has over the competition, and as the AI boom accelerates, Nvidia is well-positioned to increase its lead.
Its Vera Rubin platform is about to show up in future results, and it's not just hyperscalers driving the demand.
"This time last year, one lab alone was driving the buildout; today, we have a golden age of new AI labs and start-ups, multiple frontier labs scaling in parallel," Jensen Huang said in the Q2 FY27 press release.
Huang also touted the arrival of physical AI when describing Nvidia's opportunity. While it's not an exclusive opportunity for Nvidia, the AI chipmaker is better positioned than any other company. Its GPUs are the technological bedrock, regardless of which companies figure out physical AI the fastest.
Nvidia's position, strengthening fundamentals, and reasonable valuation make it an easy pick that could outperform the S&P 500 over an extended period. Nvidia's sluggish start was a fluke that investors have rightly called out, as evidenced by the recent accumulation.
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Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
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