Nvidia’s valuation looks surprisingly cheap heading into earnings. Could it be an issue for the stock?

Nvidia (NVDA) has a tantalizingly cheap P/E ratio.

Nvidia’s forward price-to-earnings (P/E) multiple has declined steadily since August 2024, when artificial intelligence began to take hold, unleashing a boom in the company’s stock price and earnings growth (see the graphic below). The decline has only accelerated this year despite a series of strong quarters.

The forward P/E ratio for Nvidia currently stands at 24 times, not too far removed from the S&P 500’s (^GSPC) 21-times multiple, despite the company being one of the fastest-growing companies in corporate America.

So what gives with this valuation that many would call outright cheap?

A couple of things stand out.

For one, early in any supercycle, investors tend to bid up a stock based on speculative future earnings and cash-flow potential. As Nvidia delivers actual multibillion-dollar realized profits, speculative expectations transition into actual earnings.

In short, it takes more for Nvidia, at its size, to wow investors and get them to pay a speculative-level P/E ratio. Looked at another way, Nvidia is increasingly being seen as a mature tech company — as crazy as that may sound for a company growing super quickly.

Secondarily, while Nvidia’s stock price has appreciated significantly in recent years, investors naturally discount long-term growth due to potential cyclical risks — such as the digestion of future…