Nvidia (NASDAQ: NVDA) has become one of the key winners of this artificial intelligence (AI) revolution — this is thanks to the company's early entry into the market with the fastest chips around and its focus on innovation. Nvidia makes graphics processing units (GPUs), the chips that power essential AI tasks like the training and inference of models. All of this has led to enormous levels of earnings growth for the company and a stock price that's soared more than 300% over three years.
Considering Nvidia's leading position in this high-growth market, you may expect it to be one of the most expensive AI stocks out there — even after recent declines in the sector. But the company is actually among the cheapest. Has Nvidia become a value stock? Let's find out.
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First, let's catch up on the Nvidia story so far. This tech giant has been around for more than 30 years, and in its earlier days, it primarily served the video game industry with its powerful GPUs. But Nvidia later broadened the use of these chips and, in more recent years, recognized their potential in the field of AI. The company made this technology the focus, and it's clearly won that bet.
Nvidia's revenue and profit have soared in the double- and triple-digits, reaching record levels. In the latest quarter, the chip giant reported sales of more than $81 billion and net income of $58 billion. And Nvidia has maintained a gross margin of more than 70% quarter after quarter.
The company hasn't just sold chips, though, and instead has built out its presence to include complete systems and related products and services. And Nvidia has even developed platforms for specific industries, such as healthcare and automotive, so that they can easily apply AI to their needs. So Nvidia isn't just a chip designer but instead the creator of an AI empire.
Considering all of this, even during the recent AI stock pullback, you might expect Nvidia to remain pricier than its peers. But this isn't the case. Here's a look at Nvidia's price in relation to forward earnings estimates, along with the valuations of two major peers, Advanced Micro Devices and Broadcom.
As we can see, Nvidia trades at a significant discount. A look at Nvidia's valuation in relation to its fellow "Magnificent Seven" players paints a similar picture. Nvidia is among the cheapest.
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