Nvidia Hits a New All-Time High. Is the AI Stock a Buy?

Nvidia (NASDAQ:NVDA) set a new intraday all-time high on Tuesday at $243.37 per share.

Last Friday, the stock topped its previous record set on May 14, and has continued to climb from there, notching its fifth straight gain on Tuesday.

In recent days, Nvidia has been buoyed by positive macro news, including a cooler-than-expected PCE inflation report and a weak employment report, which both make future Fed rate hikes less likely. While there's been relatively little news out on Nvidia, the general news about AI remains overwhelmingly positive. Anthropic is headed toward an IPO next month that is expected to value the company at $2 trillion. Marvell just wowed investors at its Investor Day conference after raising its 2028 revenue outlook to $20 billion, indicating strong demand for chips, and SpaceX, its close partner, has gained on several recent achievements, including sending Starship into low Earth orbit for the first time, where it deployed Starlink satellites.

The rally helped push the S&P 500 and Nasdaq Composite to all-time highs as well. Nvidia remains the most valuable company in the world with a market cap of $5.8 trillion now.

However, the stock is volatile and has experienced multiple pullbacks even during its surge in the AI boom. Is the stock still a buy? Here's what investors need to know.

Image source: Nvidia.

Nvidia looks cheap compared to its peers

Nvidia now trades at a price-to-earnings ratio of 30, which is naturally more expensive than it's been in recent weeks, but also still a reasonable price compared to its peers and the S&P 500, which trades at a P/E ratio of 25, and is growing much more slowly than Nvidia.

Meanwhile, chip stock peers like AMD, Intel, and Broadcom, which have soared on AI tailwinds lately, are all significantly more expensive than Nvidia, trading at P/E ratios of 166, 103 (adjusted), and 48, respectively.

The difference between those stocks and Nvidia is that they have largely jumped on potential AI gains, while Nvidia has already delivered those results and is poised to continue delivering strong growth.

Currently, Wall Street expects revenue to jump 67% to $687 billion next year (fiscal 2028), with adjusted earnings per share of $15.80. Those numbers have trended higher, and they could continue to go up. Based on the 2028 EPS forecast, Nvidia is trading at just 15 times earnings, which is undoubtedly cheap.

Will the law of large numbers get in the way?

Perhaps, the best reason not to buy Nvidia at this point is that the law of large numbers is likely to restrain its growth, at least at some point. Right now, Nvidia is about 20% more valuable than the #2 company, Apple.

A $10 trillion valuation for Nvidia, but that would mean a gain of 72%. That's nothing to sneer at, but Nvidia can't be the kind of multi-bagging stock at this valuation that it was a few years ago.

Additionally, the bigger the company gets, the more it has to defend its market share from challengers like AMD and Intel, and even its own customers like Amazon and Google that are developing their own chips. Thus far, Nvidia has remained the dominant provider of data center GPUs, but its monopoly is not guaranteed.

Is Nvidia a buy?

Despite those risks, the company remains in the driver's seat in the AI boom, and its valuation seems to underestimate its future growth.

While its growth rate will moderate at some point, its valuation offers investors an attractive margin of safety, and Nvidia is well-positioned to capitalize on the future growth of AI.

Compared to its peers, the stock looks undervalued and remains a strong buy.

Jeremy Bowman has positions in Advanced Micro Devices, Amazon, Broadcom, and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Apple, Broadcom, Intel, Marvell Technology, and Nvidia. The Motley Fool has a disclosure policy.