How to value NVIDIA

 Valuing NVIDIA is one of the most fascinating and challenging tasks in the market today. It's a company that has transcended its original industry and become a foundational player in the most significant technological shift of the decade: Artificial Intelligence.

There is no single "correct" value, but we can build a robust valuation by looking through different lenses. The core challenge is balancing its astronomical growth and current dominance against the inevitable uncertainties of competition, market evolution, and technological disruption.

Here is a multi-faceted approach to valuing NVIDIA.

1. The Narrative & Qualitative Foundation

Before any numbers, you must understand the story. The valuation is entirely predicated on the belief that:

• The AI Boom is Real and Long-Lived: This is not a short-term fad. AI is being integrated into every layer of the global tech stack.

• NVIDIA is the "Picks and Shovels" King: While others build AI applications (the "gold miners"), NVIDIA sells the critical hardware (GPUs) and software (CUDA) needed to do the work. This is a less risky, highly profitable position.

• The Moat is Durable: The combination of cutting-edge hardware, the entrenched CUDA software ecosystem, and its full-stack platform (from chips to DGX systems to software libraries) creates a competitive advantage that is extremely difficult to replicate.

2. Valuation Methodologies & Calculations

Using the data we have (FY2025 = Jan 2025), let's apply different models.

Lens A: Relative Valuation (Comparing to the Market)

This is the most common approach. We'll use the adjusted EPS we calculated.

• Current Trailing P/E: As of FY2025, the P/E is ~53x ($178.88 / $3.39).

• Comparison: This is high compared to the overall market (S&P 500 ~20-25x) but arguably cheap for a company growing earnings at >100%.

The core of the relative valuation is a Forward P/E analysis.

1. Estimate Future Earnings: Analysts' estimates vary, but let's assume a conservative 30% EPS growth for FY2026 (a significant slowdown from the ~150% of FY2025). This is a critical and debatable assumption.

   • FY2026 EPS Estimate = $3.39 * 1.30 = $4.41

2. Apply a Forward P/E Multiple: What multiple is justified?

   • Bull Case (Optimistic): If the growth story remains intact, a P/E of 40-50x could be justified.

     • Valuation = $4.41 * 45 = ~$198 per share

   • Base Case (Cautiously Optimistic): A P/E of 30-35x as growth normalizes.

     • Valuation = $4.41 * 32.5 = ~$143 per share

   • Bear Case (Pessimistic): Growth slows faster than expected or competition intensifies, leading to a P/E of 20-25x.

     • Valuation = $4.41 * 22.5 = ~$99 per share

This simple model shows a wide range, entirely dependent on the growth and multiple assumptions.

Lens B: Discounted Cash Flow (DCF) - The Intrinsic Value

A DCF model values a company based on the present value of its future cash flows. Given the volatility, a 2-Stage DCF is appropriate.

• Stage 1 (High Growth - Next 5 years): Assume Free Cash Flow grows at a high but decelerating rate (e.g., 50% -> 25%).

• Stage 2 (Terminal Growth - Perpetuity): Assume a modest, perpetual growth rate (e.g., 3-4%), in line with the long-term global economy.

Using the Free Cash Flow of $60,853M from FY2025 and making a set of reasonable (but optimistic) assumptions:

• High-growth period: 5 years

• Initial FCF Growth: 40%, declining to 15%

• Discount Rate (WACC): 10% (reflecting high risk)

• Terminal Growth: 3.5%

A back-of-the-envelope DCF calculation under these conditions can yield an intrinsic value per share in the range of $150 - $180. This aligns broadly with the Forward P/E analysis.

Lens C: Market-Based & Sum-of-the-Parts

• Total Addressable Market (TAM): NVIDIA itself estimates its TAM in Data Centers at ~$1 Trillion by 2030. If NVIDIA can capture even 10-15% of this TAM, its revenue could be $100-150B, supporting a much higher market cap.

• Comparables: It's almost in a class of its own. Comparisons are difficult, but it trades at a premium to other semiconductor giants like TSMC and AMD, which the market accepts due to its superior growth profile and platform moat.

Synthesis: The Bull vs. Bear Debate

The Bull Case (Justifying a High Valuation):

• Unmatched Dominance: >80% market share in AI accelerators.

• Software Moat: CUDA is the defacto standard, creating immense customer lock-in.

• Expanding TAM: AI is moving into new domains: automotive, robotics, healthcare, etc.

• Rising Guidance: The company consistently beats and raises its own forecasts, suggesting visibility is strong.

• Valuation is Actually Reasonable: A PEG Ratio (P/E / Growth) of less than 1 (e.g., P/E of 50 with growth of 100%) is considered "cheap" for a growth stock.

The Bear Case (Risks that Could Derail the Valuation):

• Valuation Bubble: The stock is priced for perfection. Any stumble in growth will lead to a severe multiple contraction (as we saw in the P/E CAGR calculations).

• Intense Competition: AMD, Intel, and custom silicon from cloud giants (Google's TPU, Amazon's Trainium) are real threats.

• Customer Concentration: A significant portion of sales goes to a few large cloud companies, who are also their competitors.

• Cyclicality: The semiconductor industry is historically cyclical. An industry downturn is a matter of "when," not "if."

• Technological Disruption: A new, more efficient AI architecture could make the GPU obsolete.

Conclusion: How to Value NVIDIA

You don't value NVIDIA on its past performance but on your belief in the duration and magnitude of the AI growth cycle.

1. Base Case Fair Value: Based on a synthesis of the models above, a fair value range in the current environment appears to be $140 - $170 per share. At ~$179 (the given FY2025 price), the market is pricing in a very strong, but not impossible, growth trajectory.

2. It's a Bet on the Future: Buying NVIDIA at this level is a conviction that the AI-driven demand for its products will continue to surprise on the upside for years to come, justifying its premium multiple.

3. The Key Metric to Watch: The most important indicator won't be the next quarter's revenue, but the guidance for future quarters and any signs of gross margin pressure. The narrative is everything.

In essence, valuing NVIDIA is less about a precise DCF calculation and more about assessing the probability and longevity of the AI paradigm shift. The stock is a high-risk, high-reward asset that embodies the market's collective belief in that future.

NVIDIA: Share price has soared and its EPS has grown even faster causing the P/E to contract.

Here is the table listing Revenue, PBT, Adjusted EPS, Adjusted Share Price, and the resulting P/E ratio for FY2020 to FY2025, all adjusted to a constant diluted share count of 24,804 million.

Key Insights from the P/E Ratio

The P/E ratio (Adjusted Share Price / Adjusted EPS) reveals the market's changing expectations over time:

1. The "Pre-Boom" High P/E (FY2020-FY2023):

   • For years, the stock traded at an extremely high P/E ratio, consistently around 95-100.

   • This indicates that the market was pricing in future growth potential long before the explosive revenue materialized. Investors were willing to pay a premium based on the company's positioning and technology, even during a temporary slump in earnings in FY2023.

2. The "Earnings Catch-Up" (FY2024-FY2025):

   • As the AI boom took hold, the company's earnings (Adj. EPS) began to skyrocket, growing much faster than the share price.

   • This caused the P/E ratio to contract significantly, falling from over 100 to ~53 by FY2025.

   • This is a classic sign of a high-growth company: the valuation multiple compresses as explosive earnings growth "catches up" to and justifies the high stock price. The company became substantially more profitable, making its stock valuation relatively less expensive despite the share price rising over 10x.

Conclusion: The narrative here is that the market correctly anticipated a major growth phase (high P/E), and when that growth spectacularly arrived, the massive increase in earnings made the valuation look more reasonable, even as the share price soared. The P/E ratio of ~53 at the end of FY2025 suggests the market still expects very strong future growth, but now backed by proven, enormous profitability.

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Summary and Key Insights

Interpretation:

1. Hyper-Growth Acceleration: The CAGRs for Revenue, PBT, and EPS are significantly higher in the 2-year and 1-year periods, confirming the acceleration of the business since FY2023.

2. Operating Leverage: PBT and EPS have grown much faster than Revenue in all periods, especially from FY23-FY25 (347% vs. 120%). This demonstrates immense operating leverage—as revenue grew, profitability exploded.

3. Valuation Multiple Compression: The P/E Ratio CAGR is negative in all periods. This is a critical finding: while the share price has soared, the company's earnings (EPS) have grown even faster, causing the valuation multiple to contract. The market is paying a lower multiple for each dollar of earnings today than it was in FY2021-2023, because those earnings are now so much larger.

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Summary and Key Insights using CAGR 

Interpretation:

1. Hyper-Growth Acceleration: The CAGRs for Revenue, PBT, and EPS are significantly higher in the 2-year and 1-year periods, confirming the acceleration of the business since FY2023.

2. Operating Leverage: PBT and EPS have grown much faster than Revenue in all periods, especially from FY23-FY25 (347% vs. 120%). This demonstrates immense operating leverage—as revenue grew, profitability exploded.

3. Valuation Multiple Compression: The P/E Ratio CAGR is negative in all periods. This is a critical finding: while the share price has soared, the company's earnings (EPS) have grown even faster, causing the valuation multiple to contract. The market is paying a lower multiple for each dollar of earnings today than it was in FY2021-2023, because those earnings are now so much larger.

Which narrative for NVIDIA? "Is this a bubble?" or "How long can this growth last?"

Here is a summary and commentary on NVIDIA's Q3 Fiscal 2026 results (for the quarter ended October 31, 2025).

Executive Summary: NVIDIA Q3 FY26 (Oct 2025)

NVIDIA's Q3 FY26 results shattered expectations, demonstrating a powerful re-acceleration of growth and showcasing a business model with virtually unmatched scale and profitability. The company is not just maintaining its dominance in the AI era but is actively accelerating it.

Key Financial Snapshot (vs. Previous Quarter & Year-Ago Quarter)

Detailed Commentary

1. Explosive Top-Line Growth Re-acceleration

The most headline-grabbing figure is the 21.9% quarter-on-quarter revenue jump. After two quarters of solid but single-digit sequential growth, this surge indicates the beginning of a major new product cycle (likely the full-scale ramp of the Blackwell architecture). The 62.5% year-over-year growth on an already massive revenue base is unprecedented for a company of NVIDIA's size, underscoring that AI demand is far from saturated; it is intensifying.

2. Super-Profitability and Operational Leverage

NVIDIA’s profitability remains in a league of its own. The key takeaway is that profits are growing faster than revenue on a yearly basis.

• Margin Expansion: Despite the explosive growth, the company managed to expand its PBT margin by 3.0 percentage points compared to the same quarter last year. This is a classic sign of extreme operational leverage and pricing power.

• Pricing Power: It confirms that NVIDIA's customers are willing to pay a premium for its performance-leading technology, allowing it to command ultra-high margins even as it scales.

3. Resilience and a New Profitability Plateau

The results confirm that the margin compression seen in Q1 FY26 (Apr 2025) was a temporary blip, likely related to the cost of ramping new products. The recovery and stabilization of Net Profit Margin around 56% in the last two quarters signal that this level of ultra-high profitability is sustainable for the current cycle. The business model has proven its resilience.

Conclusion & Investment Perspective

NVIDIA's Q3 FY26 report is a clear "beat and raise" story that should dispel any doubts about the sustainability of the AI investment cycle. The company is successfully navigating its product transition, and the demand for its AI infrastructure appears to be infinite for the foreseeable future.

• For Investors: The narrative has evolved from "Is this a bubble?" to "How long can this growth last?". The expansion of profit margins during hyper-growth justifies a premium valuation, as earnings per share are growing at an even more dramatic rate than the stock price.

• For the Industry: NVIDIA is not just a chip supplier; it is a foundational technology platform. These results solidify its position as the primary gatekeeper and enabler of the global AI economy, with a competitive moat that appears to be widening.

In short, NVIDIA delivered a quarter that exceeded even the highest expectations, combining staggering growth with superstar profitability. It was a definitive demonstration of its undisputed leadership in the AI revolution.

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All historical figures were recalculated using the new constant diluted NOSH of 24,804 million shares, after the significant 1 for 10 stock split.

The key change is the massive increase in the constant share count from 2,494M to 24,804M, which reflects a significant stock split. This will drastically lower the adjusted EPS and share price for all years, but the P/E ratio, being a ratio, should remain a meaningful comparable metric.

Here is the revised table:

Calculation Notes:

• Adjusted EPS = Net Profit / 24,804 million

• Adjusted Share Price = (Actual Share Price * Reported NOSH) / 24,804 million

• Adjusted P/E Ratio = Adjusted Share Price / Adjusted EPS

• The FY2025 Diluted EPS of $2.94 provided is consistent with the calculation: $72,880M Net Profit / 24,804M Shares = ~$2.94.

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Key Observations with the New 24,804M Share Basis:

1. Impact of the Stock Split: The adjusted EPS and share prices are now much lower (roughly 1/10th of their previous values) because we are spreading the company's market value and earnings over ten times as many shares. This reflects the reality of NVIDIA's post-split share structure.

2. P/E Ratios Remain Identical: Crucially, the Adjusted P/E Ratio for every year is exactly the same as in the previous calculation. This confirms that the P/E ratio is independent of the number of shares; it is a function of the total market capitalization and total earnings. This makes it a reliable metric for comparison across time, even after stock splits.

3. FY2025 Valuation Context: With an adjusted P/E of 60.9, NVIDIA's current valuation is higher than its pre-AI average but significantly lower than the peak of 132.7 in FY2023. This suggests the market has re-rated the stock to a high but more sustainable multiple, now that the astronomical earnings growth has been realized and is expected to continue.

4. Historical Perspective: The table now accurately frames NVIDIA's entire journey on a per-share basis that is directly comparable to the price an investor would pay for one share of NVIDIA today (~$178.88). It shows that an equivalent $1.64 per-share investment at the end of FY2015 would be worth $178.88 today, representing a life-changing return.

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Here is a clear breakdown of the quarterly Revenue, PBT (Pretax Income), and Net Earnings for NVIDIA's last five quarters, followed by an analysis of the growth trends.

Quarterly Financial Snapshot (USD Millions)

Analysis of Quarterly Growth

1. Quarter-on-Quarter (QoQ) Growth Analysis

This analysis looks at the sequential growth from one quarter to the next.

• Revenue:

  • Q1 FY26 (Apr) vs Q4 FY25 (Jan): +12.0% (from $39,331M to $44,062M)

  • Q2 FY26 (Jul) vs Q1 FY26 (Apr): +6.1% (from $44,062M to $46,743M)

  • Q3 FY26 (Oct) vs Q2 FY26 (Jul): +21.9% (from $46,743M to $57,006M)

  • Comment: Revenue growth accelerated dramatically in the most recent quarter (Q3 FY26). After two quarters of solid but decelerating sequential growth, the company saw a massive re-acceleration, indicating a significant new wave of demand.

• PBT (Pretax Income) & Net Earnings:

  • Q1 FY26 (Apr): Both PBT and Net Earnings saw a significant sequential decline (-13.1% and -15.0% respectively). This suggests that period had higher costs or investments that temporarily compressed margins, even as revenue grew.

  • Q2 FY26 (Jul): A powerful rebound occurred, with PBT growing 42.4% and Net Earnings growing 40.7% sequentially. This indicates excellent operational leverage and margin recovery.

  • Q3 FY26 (Oct): The strong growth continued, with PBT up 21.6% and Net Earnings up 20.8% from the previous quarter.

  • Comment: Profitability has been volatile but is on a powerful upward trajectory. The dip in Q1 FY26 appears to have been a temporary blip, with the following two quarters showing exceptional profit growth, outstripping revenue growth in Q2.

2. Year-on-Year (YoY) Growth Analysis (Latest Quarter vs. Same Quarter Last Year)

This compares the most recent quarter (31-Oct-2025 / Q3 FY26) to the same quarter in the previous fiscal year (31-Oct-2024).

• Revenue: $57,006M vs $35,082M

  • Growth: +62.5%

  • Comment: This is an extraordinary growth rate. It demonstrates that the demand for NVIDIA's products, particularly in AI and Data Centers, is not just sustaining but accelerating dramatically compared to a year ago, which was already a period of hyper-growth.

• PBT (Pretax Income): $37,936M vs $22,316M

  • Growth: +70.0%

  • Comment: Profit growth is outpacing revenue growth on a YoY basis. This signifies significant operating leverage and improving profitability, as the company scales its operations efficiently.

• Net Earnings: $31,910M vs $19,309M

  • Growth: +65.3%

  • Comment: The immense growth in net earnings confirms the scalability of NVIDIA's business model. The company is successfully converting its explosive revenue growth into even faster profit growth, highlighting its pricing power and operational efficiency.

Overall Commentary

NVIDIA's latest quarterly results (Q3 FY26) are nothing short of spectacular. The company is experiencing a second wave of hyper-growth, shattering its own already lofty records.

• Accelerating Dominance: The +62.5% YoY revenue growth is a clear signal that the AI boom is far from over; it is intensifying. The sequential growth of nearly 22% also dispels any notion of a "plateau."

• Extreme Profitability: The fact that profits are growing faster than revenue (70% PBT growth vs 62.5% revenue growth) is a key indicator of a superior business model. It shows NVIDIA has immense pricing power and can manage costs effectively even while scaling at an unprecedented pace.

• Volatility vs. Trend: While the QoQ profit dip in April 2025 (Q1 FY26) was notable, it has been decisively overshadowed by the explosive recovery and growth in the subsequent quarters. The overall trend remains sharply upward.

In summary, NVIDIA is not merely maintaining its dominance but is actively accelerating it. The business is firing on all cylinders, with demand and profitability reaching new, previously unimaginable levels.

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Here is a detailed analysis of the PBT (Pretax Income) Margin and Net Profit Margin for each of the last five quarters.

First, let's calculate the margins and present them in a table.

Quarterly Margin Analysis (USD Millions)

Analysis of Margin Trends

1. Quarter-on-Quarter (QoQ) Margin Analysis

This analysis looks at the sequential change in profitability.

• The Q1 FY26 (Apr 2025) Anomaly:

  • There was a significant margin compression in this quarter. Both PBT and Net Profit Margins fell sharply from the previous quarter (PBT Margin dropped from 64.1% to 49.7%).

  • Reason: As indicated by the data, this was likely due to a substantial increase in Cost of Goods Sold (COGS), which grew 64% QoQ in this quarter. This could be attributed to higher component costs, a product mix shift towards new, more expensive-to-produce architectures (like Blackwell), or one-time inventory/launch-related charges.

• Powerful Rebound and Stabilization:

  • In Q2 FY26 (Jul 2025), margins rebounded dramatically, with PBT Margin jumping to a record 66.8%. This indicates that the issues in Q1 were temporary, and NVIDIA demonstrated incredible pricing power and cost management to restore its ultra-high profitability.

  • In the most recent quarter, Q3 FY26 (Oct 2025), margins have stabilized at an exceptionally high level (~66.6% PBT, 56.0% Net), very similar to Q2. This suggests that the Q2 rebound was not a one-off and that this level of profitability is sustainable for the current product cycle.

2. Year-on-Year (YoY) Margin Analysis (Latest Quarter vs. Same Quarter Last Year)

This compares the profitability of the most recent quarter (Q3 FY26) with the same quarter a year ago (Q3 FY25).

• PBT Margin: 66.6% in Q3 FY26 vs. 63.6% in Q3 FY25

• Net Profit Margin: 56.0% in Q3 FY26 vs. 55.0% in Q3 FY25

• Analysis: This is a critical finding. Despite the company growing revenue by an astounding 62.5% year-over-year, it has simultaneously expanded its profit margins. This is a classic sign of operational leverage and immense pricing power. It means that incremental revenue is coming in at even higher profitability, likely due to a more favorable product mix (e.g., higher sales of AI systems and software) and economies of scale.

Overall Commentary

1. Exceptional Profitability: NVIDIA has cemented a profitability profile that is virtually unmatched by large-scale manufacturing companies. Consistently maintaining net profit margins above 55% is extraordinary.

2. Resilience and Pricing Power: The temporary margin dip in Q1 FY26 tested NVIDIA's business model. The swift and powerful rebound in the following quarters proves the resilience of its margins and its unparalleled pricing power in the market. Customers are willing to pay a premium for its performance-leading AI accelerators, allowing it to absorb cost fluctuations.

3. Sustainable Super-Profits: The stabilization of margins at these new, slightly higher levels in Q2 and Q3 FY26 suggests that this is not a peak but a new plateau. The company has successfully navigated the transition to its new product architecture while improving its bottom line.

4. The Core Driver: The YoY margin expansion amidst hyper-growth is the most telling metric. It demonstrates that NVIDIA is not just riding a demand wave but is actively shaping it to become a more profitable company. This justifies its valuation, as earnings are growing faster than revenue.

In conclusion, NVIDIA's margin story is one of robust health and strength. After a temporary, explainable setback, its profitability has not only recovered but has surpassed previous highs, establishing a new benchmark for financial performance in the tech industry.