NVIDIA’s (NVDA) forward price-to-earnings (P/E) ratio has dropped to 17x, falling below that of the S&P 500 index for the first time in ten years. The market is hotly debating this rare valuation signal: does this represent a rare buying opportunity at a low price, or is the competitive landscape undergoing profound changes?
NVIDIA’s largest customers, Amazon and Microsoft, have both announced plans to invest heavily in AI data centers. However, investor skepticism regarding the rationality of these investments has led to declines in both companies’ stock prices. Despite the deep financial resources of these two tech giants, they ultimately need to see a return on their investments. If one of these major customers decides to cut data center spending, the impact on NVIDIA would be enormous. More notably, these customers could even become competitors to NVIDIA in the future.
Many of NVIDIA’s customers, including Amazon and Microsoft, have been developing their own chips. In some cases, these competitors have even achieved stronger performance and higher efficiency. However, abandoning NVIDIA’s architecture means rewriting code, retraining developers, and migrating software — a time-consuming and costly process that forms NVIDIA’s moat. Nevertheless, a coalition of companies including Alphabet, Intel, and Samsung is working on open-source alternatives. If successful, this could threaten NVIDIA’s pricing power. It can be said that although NVIDIA’s valuation multiple is lower than in the past, the competitive landscape has never been more challenging.
Valuation multiples often reflect investors’ views on a company’s future prospects. On the surface, the market believes that NVIDIA’s outlook is worse than the average of S&P 500 components. However, this reflects more uncertainty than clear-cut pessimistic expectations. NVIDIA’s story is becoming increasingly technical, making it difficult for non-professional investors to make accurate assessments. As Warren Buffett once said, “Risk comes from not knowing what you’re doing.” Investors don’t need to understand every aspect of a company before buying its stock, but the less they understand, the greater the risk. This prevents NVIDIA from being a clear-cut, no-brainer investment that excites the market.
Looking at the supply chain, NVIDIA’s supply for CoWoS advanced packaging is largely locked in, with capacity expected to reach 650,000 wafers in 2026 and increase to 840,000 wafers in 2027. However, the production schedule for the next-generation Rubin GPU may see a slight delay, primarily due to the verification progress of HBM4 memory, with production targets revised down from 2 million units to 1.5 million units. KeyBanc Capital Markets believes the related impact is relatively limited and maintains an “Overweight” rating on NVIDIA with a price target of $275.
