AI Giant NVIDIA Misjudged by Market? Analysts: Valuation Hits 5-Year Low, Long-Term Investment Opportunity Emerges

NVIDIA (NVDA-US) has seen its stock price rise by only about 10% this year, significantly lagging behind Advanced Micro Devices (AMD-US), which surged over 140%, and Micron Technology (MU-US), which soared more than 200%. As a result, its valuation has slipped to its lowest level in nearly five years. However, analysts believe this pricing reflects overly pessimistic assumptions, potentially creating an entry opportunity for long-term investors.

Morningstar analyst Brian Colello指出 that based on NVIDIA's current share price of approximately $212, the market is essentially assuming that the AI chip leader will stagnate after 2027. He argues that using a 16x multiple of estimated revenue for the 2029 fiscal year, NVIDIA's fair value should be close to $280 per share.

According to S&P Global Market Intelligence, NVIDIA's current EV/EBITDA ratio is about 17 times next year's expected earnings, far below the five-year average of 36 times and the lowest since July 2021.

In contrast, AMD is currently trading at 53 times next year's expected earnings, still viewed by the market as a growth stock. Micron has benefited from explosive demand for AI data centers, with its stock rising over 200% this year. The Philadelphia Semiconductor Index has gained 71% year-to-date, further highlighting NVIDIA's relative weakness.

John Belton, portfolio manager at Gabelli Funds, said semiconductor investors currently favor targets with the most severe supply-demand imbalances and underdeveloped growth potential—conditions that, in his view, NVIDIA no longer meets.

He revealed that he has been consistently increasing his positions in AMD and Micron recently, while remaining neutral on NVIDIA and maintaining only his existing holdings.

The analysis suggests that behind this valuation divergence, the market appears to be reclassifying NVIDIA from a high-growth stock to a mature large-cap tech company.

Challengers Emerge, Bear Case Takes Shape

NVIDIA's competitive pressures are indeed mounting. Since OpenAI launched ChatGPT and ignited the AI boom, the chip market has seen a flood of new entrants:

Startups SambaNova and Cerebras Systems (CBRS-US) have launched their own custom chips;

Google (GOOGL-US) has begun selling and renting its in-house AI chips via cloud services, a move Amazon (AMZN-US) is closely following;

Meta (META-US), Microsoft (MSFT-US), OpenAI, and Anthropic are all advancing their own chip development initiatives.

AMD also plans to ship its first AI server rack system, 'Helios,' later this year—a highly integrated chip and hardware system seen as a direct challenge to NVIDIA's Grace Blackwell and Vera Rubin product lines.

Moreover, NVIDIA's massive revenue base inherently makes it difficult to achieve growth rates comparable to smaller rivals. This 'base effect' is seen as another structural factor suppressing its valuation.

Bull Case: Valuation and Earnings Forecasts Are Misaligned

Despite the bearish narrative appearing coherent, bulls argue there is a clear disconnect between analysts' earnings forecasts and the current stock price.

The market expects NVIDIA's revenue to grow 42% in the next fiscal year (ending January 2028), reaching $560 billion, followed by another 23% growth the following year.

In contrast, while AMD is projected to grow revenue by 57% in 2027 and 36% in 2028, its 2027 revenue is expected to be only about $78 billion—far smaller in scale than NVIDIA. This makes AMD's current valuation premium of 53 times harder to justify.

Colello emphasizes that from a multi-year perspective, NVIDIA's current valuation is actually quite cheap. The key questions are whether hyperscale cloud providers and enterprise customers will maintain strong capital spending in two years and whether NVIDIA can defend its market share.

He stated, 'We believe the answer is yes, and that is precisely why this stock is undervalued.' He forecasts that NVIDIA's revenue and adjusted earnings per share will maintain annual growth rates above 45% through the 2029 fiscal year.

Moat Intact: Rising Inference Share, Countercyclical Resilience Underappreciated

Analysts point out that despite increasing competition, NVIDIA's dominance in the AI chip market remains unshaken.

According to a recent report by The Information, NVIDIA's market share in inference chips—used to run trained models rather than train them—has actually increased rather than declined.

Notably, NVIDIA's 'countercyclical resilience' may be underestimated by the market. If tech companies like OpenAI reduce AI investments in the future, many firms that have only recently started developing their own chips may abandon their efforts and revert to purchasing NVIDIA products.

This means that if the AI investment boom cools, the impact may fall on emerging chip designers whose products have not yet been fully validated in the market—not on NVIDIA itself.

Additionally, while NVIDIA's recent strategic investments in cloud startups like Nebius A (YNDX-US) and CoreWeave (CRWV-US) have drawn some skepticism, analysts believe these moves could provide a buffer for NVIDIA's business during industry downturns.