Is NVIDIA too expensive? No! Its valuation is lower than in January this year.

NVIDIA's stock price has soared this year, boosting the entire stock market as well as the S&P 500 and Nasdaq indices. Despite the increase in market capitalization, NVIDIA's latest performance indicates that its valuation based on a key indicator has actually become more reasonable.

The forward price-to-earnings ratio is a measure of the stock's current price relative to future (typically next year's) earnings. It is a widely used method to track company value and determine how much people are willing to pay for its stock.

Decrease in Forward P/E Ratio

Data shows that NVIDIA's current forward P/E ratio is lower than the level since January 5th, although the stock has risen by 250% since then.

NVIDIA's latest performance, especially its guidance, has been so good that analysts have significantly raised their earnings forecasts for the company's future. This suddenly makes its forward P/E ratio more attractive.

As of July 31st, analysts surveyed by FactSet generally predict earnings per share of $7.95 for NVIDIA's fiscal year 2024 and $11.53 for fiscal year 2025.

NVIDIA's forward P/E ratio has also decreased. The forward P/E ratio for NVIDIA last Friday was 33.8 times, lower than the over 43 times before the earnings report, and the lowest level since January 5th.

A similar conclusion can be drawn from NVIDIA's trailing twelve months P/E ratio. The historical P/E ratio for NVIDIA last Friday was 113.8 times, lower than the nearly 245 times before the earnings report on Wednesday. This is the lowest level since March 28th.

Valuation tools like forward or historical P/E ratios are not the entirety or final standard for measuring stock value, but they serve as a good starting point.

Therefore, those who believed NVIDIA's valuation was reasonable in January may have the same thoughts now.