Since the start of 2023, Nvidia's (NVDA 0.10%) stock has risen by an astronomical 906% as of the time of writing. It's also right around its all-time high right now, but these two facts may scare some investors off. The common thought is, "Nvidia has risen so much already; how can it increase more?"
This behavior is known as "price anchoring," and it occurs when investors "anchor" their thoughts to a previous price, and when it rises, they now deem it to be expensive. While this is common investor thinking, it's dangerous, as it has caused many (including myself) to miss a large chunk of Nvidia's rise. However, I'd argue that Nvidia isn't all that expensive of a stock right now, especially when compared to its peers.
Although you may have missed part of the initial run, there is still plenty of room to run.
Nvidia will experience strong growth again in 2025
Nvidia's success can be tied directly to one movement: artificial intelligence (AI). Nvidia has benefited from this trend because big AI spenders have loaded their computing servers with industry-leading Nvidia GPUs. GPUs are a fantastic pick for this type of computing because they can process multiple calculations in parallel. They can also be connected in clusters to multiply this effect, and it's not uncommon to see servers with more than 10,000 GPUs doing AI model training for the AI hyperscalers.
Although the initial stages of the AI computing buildout were massive, companies are planning on spending more this year. All of the cloud computing platforms have told investors that capex will rise in 2025 -- a similar message that AI hyperscaler Meta Platforms (META 2.08%) portrayed during its Q3 earnings release. Taiwan Semiconductor (TSM 0.64%), Nvidia's chip manufacturer, also forecasted that AI-related chips would double their revenue in 2025, another clear indication that Nvidia's growth is far from over.
Lastly, let's look at what Wall Street analysts expect from Nvidia. For FY 2026 (ending January 2026), an average of 60 analysts expect Nvidia to produce revenue of $196 billion -- up 52% from where they think FY 2025 will end. That level of growth is unprecedented for a company of Nvidia's size and also indicates that the Nvidia growth story is far from over.
Nvidia is slated to have a monster 2025, but the stock isn't trading at high levels in preparation for it.
Nvidia isn't as expensive as you might think
Because Nvidia is expected to grow so much over the next year, using a trailing earnings metric can be problematic. So, I'll use a forward-looking measure to assess Nvidia's valuation.
At today's prices, if Nvidia hits all of the targets analysts have set, it will trade for 33 times earnings at the end of FY 2026. In other words, it will trade for 33 times 2026 projected earnings.
NVDA PE Ratio data by YCharts.
That's not all that expensive, especially considering companies like Apple (AAPL -0.08%) and Microsoft (MSFT 0.11%) trade for 27 and 30 times FY 2026 earnings, respectively.
However, if Nvidia keeps up its strong growth rates, it's unlikely to drop to a valuation level that low. As a result, the stock will likely rise throughout the year, rewarding investors with market-beating returns.
Although Nvidia has had a great run over the past two years, I think 2025 will be another strong year for the stock, although it likely won't be as good as 2023 or 2024. Still, there is plenty of growth left in the business, which makes it a solid buy now.
