Is NVIDIA Stock a Bargain or Value Trap Ahead of Earnings?

Key Insights

• NVIDIA stock price remains in a tight range this month.
• The company has become a bargain ahead of its earnings.
• Technical analysis suggests that the stock will retreat.

NVIDIA’s stock price will be in the spotlight in the coming days as it publishes its financial results, which will shed more light on its business amid the ongoing AI boom. NVDA has remained within a narrow range over the past few months and underperformed the broader market. This article explores whether it is a bargain or a value trap ahead of its results.

Wall Street Analysts Expect NVIDIA to Post Strong Financial Results

Most analysts tracking NVIDIA believe the company’s business continued to fire on all cylinders in the last quarter as demand for its products rose.

For example, most companies that account for a big share of its revenue have confirmed that they continued spending in the last quarter. These firms, including popular names like Meta Platforms, Microsoft, Google, and Amazon, have also pledged to spend over $650 billion this year.

Data compiled by Yahoo Finance estimates that NVIDIA’s business continued thriving in the last quarter of the year. The average estimate is that its revenue rose to $65.7 billion, aligning with what the management guided.

However, the company has always done better than estimates. This means that the real revenue will be much higher than that. Historically, revenue has been $1 billion to $2 billion above expectations.

The same growth is expected in its earnings growth. Analysts expect its earnings per share (EPS) to be $1.53, higher than the 89 cents it reported in the same period in 2024. This estimate will bring its annual EPS to over $4.69, higher than the previous year’s $2.9.

Is NVIDIA a Bargain or Expensive?

There are a few metrics for determining whether a company is a bargain or an expensive bet. One approach is to compare its price-to-earnings (P/E) ratio with the broader market.

Data compiled by FactSet shows that the forward P/E ratio of the S&P 500 Index is 22. Therefore, NVIDIA requires a much higher multiple than this because of its faster growth and moat in the GPU industry. For one, the average earnings growth of the S&P 500 Index is 13%.

Data compiled by Seeking Alpha reveals that the company has a forward price-to-earnings ratio of 40. This multiple is much higher than the sector median of 22.

The limit of using the P/E ratio is that it does not include a company’s growth. Therefore, a key approach is to use the PEG ratio. In this case, NVIDIA has a forward PEG ratio of 1.06, much lower than the sector median of 1.4. It is also lower than the five-year average of 1.5777.

These metrics mean that NVIDIA is not all that expensive, especially when you consider its growth and margins.

Another approach is to use the rule-of-40 approach, which compares a company’s revenue growth and its profit margins. Ideally, a company is considered a bargain if the multiple is above 40, since this means that it has a balance between growth and margins.

In this case, NVIDIA has a 2025 forward revenue growth of 63%. Its estimated growth for 2026 is 53%. The company has a net profit margin of 53%. This means that its rule-of-40 multiple is 116 and 106, meaning that it is a bargain.

NVIDIA Stock Price Technical Analysis

While fundamentals suggest that the NVIDIA stock is a bargain, technicals suggest that it may be on the verge of a drop as earnings near. As we have written before, the stock has formed a head-and-shoulders chart pattern, a common bearish reversal sign in technical analysis.

Therefore, there is a likelihood that the stock will have a bearish breakout, a move that will make it cheaper. The initial target will be at $170, which is the neckline, followed by $150, the 50% retracement level.

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