Key Points
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Nvidia CEO Jensen Huang expects strong growth for his company and the overall AI infrastructure market to continue.
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Nvidia is the world’s largest company by market cap, but there’s a strong case to be made that the stock still presents appealing value.
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The AI hardware leader is seemingly on track for further huge growth, and its current valuation may underappreciate its momentum.
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Speaking at Goldman Sachs‘ Communacopia + Technology Conference on Sept. 10, Nvidia (NASDAQ: NVDA) CEO Jensen Huang highlighted a series of growth forecasts for his company and the artificial intelligence (AI) market at large. Notably, Huang doubled down on his projection that the world’s annual AI infrastructure spending would land between $3 trillion and $4 trillion by 2030. For reference, market research firm Gartner projects that global AI infrastructure spending will total roughly $1.48 billion.
At the conference, Huang also reiterated the guidance that Nvidia issued with its fiscal Q2 report earlier this month for sales growth of 70% in its next fiscal year. He went on to describe Nvidia as the “world’s first and only growth value stock.” What does that mean for investors?
What should investors make of Huang’s “growth value” framing?
Huang has done an incredible job guiding Nvidia’s growth, turning it into the most important player in the AI hardware space and the world’s most valuable company by market cap. He’s undoubtedly a visionary leader and one of this century’s most important and influential figures.
At the same time, it would probably be a stretch to call Nvidia the world’s first and only “growth value stock.” With the benefit of hindsight, many of history’s biggest tech winners could have been placed in the category at various points in their growth trajectories — and there are probably other stocks on the market right now that could also justifiably fit in it.
On the other hand, Huang isn’t wrong to point out the unusual nature of Nvidia’s current valuation profile relative to its growth. Despite its incredible valuation run-up and megacap size, traditional valuation metrics suggest Nvidia could be significantly undervalued.
Nvidia is currently trading at roughly 23 times this year’s expected earnings and roughly 12.5 times expected sales. Given the company’s stellar growth rates this year, the stock actually looks quite cheap based on those valuation metrics. The company grew revenue 106% year over year in the second quarter, and adjusted net income surged by 118%.
The company is on track for massive growth this year, but valuation multiples that look low compared to the business’s rates of sales and earnings expansion would make sense if the business were on track for big performance drop-offs next year and beyond. That doesn’t appear to be the case.
With Nvidia guiding for roughly 70% revenue growth in fiscal 2028 and gross margins of 72% to 73%, the business is seemingly poised for another year of strong sales and earnings growth. The company has also tended to be conservative in its guidance. With that in mind, there are good reasons to think that Huang is correct to highlight the striking “growth value” characteristic of his company’s stock.
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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group and Nvidia. The Motley Fool has a disclosure policy.
