Investor focus then turned towards NVDA’s fourth quarter earnings report on February 26, 2025.
The financial results actually appeared to come in at or above expectations—leading to an initial pop in after-market trading after they were released.
As we described at the time, the company’s comments and outlook were also encouraging.
But in the days that followed, NVDA shares drifted downward again as tech stocks as a whole were driving the market lower.
The tech sell-off
Tech stocks have continued to be the worst performers in recent weeks as market sentiment has deteriorated.
The chatter among investors relates primarily to concerns about economic disruption from Trump’s tariff policies, the implications of reduced federal spending, and a potential slowdown (and even possibly a recession).
Interestingly, tech companies are not necessarily the most vulnerable to a slowing economy or tariffs that impact industrial supply chains.
Yet high valuations and heavy concentration within major indices have led to the tech sector bearing the brunt of recent selling. We have seen a rotation away from technology shares and towards more defensive sectors and even foreign stocks.
The crypto sell-off (following the recent Bybit hack) and the struggles of Tesla (TSLA) (with Elon Musk falling out of favor with many of his prior customers) have only exacerbated negative sentiment in tech.
This negative momentum has continued through most of March.
As we write on March 12, 2025, the Nasdaq Composite is down approximately 8.5% year to date, although both the Nasdaq and NVDA shares are responding positively to today’s CPI report.
The latest CPI report offers some reassurance that inflation is moderating. This development favors lower interest rates going forward.
Yet even with today’s bounce (up approximately 5%), NVDA shares remain way down from recent highs.
Price is everything
Every viable business is worth something. The key to investing is understanding what is a good price to pay for a business relative to its prospects.
An excellent company with a lot of future growth could turn out to be a disappointing investment, simply because one overpays for it.
In the case of NVDA, there has been a substantial reduction in its market valuation without a corresponding decline in its business prospects, which remain quite strong.
At current levels, NVDA shares are trading at approximately 25 times consensus estimate earnings per share for this year (fiscal year ending January 2026). The P/E multiple drops to approximately 20 times for the following year.
NVDA’s meteoric rise in recent years has been driven by real earnings growth—not hype.
Current P/E multiples for NVDA reflect only a modest premium to the broader market. The S&P 500 Index now trades at approximately 21 times and 19 times this year and next year’s earnings.
Open-ended upside
It is not an exaggeration to say that NVDA is driving the AI revolution, which is still in early stages. NVDA technology continues to be in extremely high demand with few competitors able to match its performance.
As CEO Jensen Huang has pointed out, NVDA customers choose its products because the total economic benefit far surpasses that offered by the competition, who cannot compensate for this even with lower prices.