This Artificial Intelligence (AI) Pure Play Is Running a Rare "Double Down" Signal

The artificial intelligence (AI) investing space has taken a bit of a hit recently. Several stocks are selling off, and a handful of them appear to be flashing buying signals. My top AI stock pick has been Nvidia (NASDAQ: NVDA), and it's flashing a rare "double down" signal. What's a double down? It's when you double your initial investment because the deal has gotten so good.

I think that's what a lot of investors should do with Nvidia's stock, as it hasn't been this cheap this late in the year for a long time.

Image source: Getty Images.

Nvidia has major growth coming again next year

One of the biggest concerns in the market right now has to do with AI data center spending. This is a fair concern, as hundreds of billions of dollars are being poured into this build-out. At the start of 2026, the four major AI hyperscalers said they expected to spend about $650 billion on their combined capital expenditures in 2026. However, next year, Nvidia projects that sum will rise to $1 trillion. While some investors may be tempted to brush off that projection, the reality is that Nvidia likely can make that forecast with confidence based on the orders it already has booked for next year. Hyperscalers have already offered some support for this prediction: Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), for instance, has told investors to expect "significantly" higher capital expenditures in 2027 compared to 2026.

That gives Nvidia investors reasons to feel optimistic about the stock, as long as all of that expected growth hasn't been priced into it already. Considering where it's valued, I think it's pretty clear that it hasn't been priced in, and that's where I found my buying signal.

From a forward earnings perspective, Nvidia now trades at the same valuation as the S&P 500 (SNPINDEX: ^GSPC): about 21.5 times forward earnings.

NVDA PE Ratio (Forward 1y) data by YCharts.

While Nvidia tends to start the year off with a fairly low forward earnings ratio, it usually gets far higher by the time July rolls around -- but not this year. Furthermore, investors know more growth is coming in 2027, and based on those projections, the stock trades at a mere 15 times 1-year forward earnings. That's a pretty compelling buying signal, and I think investors should take advantage of it. The AI sector's momentum will come back eventually, and with the next set of earnings results starting to roll out over the next few weeks, "eventually" could be fairly soon. I think that earnings season could be the catalyst that jump-starts Nvidia stock, making it a smart buy right now.

Keithen Drury has positions in Alphabet and Nvidia. The Motley Fool has positions in and recommends Alphabet and Nvidia. The Motley Fool has a disclosure policy.