What Recent AI Expansion Means for Nasdaq Shares in 2025

Are you eyeing Nasdaq, wondering if now is the right time to buy, hold, or look elsewhere? You're definitely not alone; this stock has caught a lot of attention, both from long-term fans and newcomers hoping to ride the next wave. Over the past five years, Nasdaq's share price has soared by an impressive 117.6%, turning plenty of heads in the process. Even over the last twelve months, it gained 23.0%, outpacing many of its peers and suggesting investors still see strong growth potential here. Of course, stocks rarely climb in a straight line. In the short term, there has been some volatility, with a dip of 0.3% over the past week and a modest 3.5% decline in the last month. Still, the 15.7% gain since the start of the year signals there is more to this story than just recent turbulence.

What is driving these moves? Market watchers point to Nasdaq’s strong position as a leading provider of trading and technology services, allowing it to benefit from evolving trends in global finance. When markets become more dynamic or investors seek efficiency, Nasdaq is often in the spotlight, appealing to those who believe in the ongoing modernization of financial infrastructure. But here's where things get complicated. Even with all this momentum, the valuation score for Nasdaq currently sits at 0 out of 6 on traditional value checks. In other words, none of the standard measures flag Nasdaq as undervalued right now.

Valuation can feel like a maze, but let's break down some of the key approaches investors use. And stay tuned; at the end, I'll share a smarter way to think about whether Nasdaq is really worth its current tag.

Nasdaq scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Nasdaq Excess Returns Analysis

The Excess Returns model evaluates a company's ability to generate profits above its cost of equity, highlighting how efficiently it puts shareholders' capital to work. For Nasdaq, this approach looks at how much extra value the company can create on every dollar it retains and invests, compared to a typical required rate of return.

Key figures from the model show Nasdaq’s Book Value sits at $20.58 per share, with a Stable EPS of $3.89 per share, based on estimates from five analysts. The Cost of Equity is estimated at $1.95 per share, while the Excess Return is calculated at $1.94 per share. This signals that, after accounting for the expected return required by investors, Nasdaq still manages to create nearly two dollars more value per share. The average Return on Equity is notably strong at 17.05%, showing the company consistently outperforms the typical capital cost. Looking ahead, analysts project a stable Book Value of $22.81 per share, further supporting strong underwriting for the future.

However, the intrinsic value estimated by this method comes in at $58.15 per share, which is 54.1% below the current share price. This means Nasdaq appears significantly overvalued using the Excess Returns approach.

Result: OVERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Nasdaq.

Our Excess Returns analysis suggests Nasdaq may be overvalued by 54.1%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Nasdaq Price vs Earnings

The Price-to-Earnings (PE) ratio is a go-to metric for valuing profitable companies like Nasdaq, since it directly compares what investors are willing to pay for each dollar of current earnings. For businesses that consistently turn a profit, this ratio offers a straightforward lens to assess how the market views their future potential and profitability.

However, a "fair" PE ratio can be a moving target. It tends to vary with expectations for future growth and the risks unique to each company. High-growth, stable businesses often command higher PE ratios as investors anticipate bigger profits down the line, while riskier or slower-growth firms usually see their multiples shrink.

Currently, Nasdaq's PE stands at 34.1x, a notch above both its Capital Markets industry average of 25.7x and peer average of 33.1x. Simply Wall St’s proprietary "Fair Ratio" for Nasdaq is calculated at 18.0x, which takes into account the company’s earnings growth potential, profit margins, industry profile, overall risk, and even its market cap. Unlike standard comparisons against peers or industry averages, the Fair Ratio cuts through the noise by evaluating Nasdaq’s fundamentals in context, offering a deeper and tailored gauge of what investors should realistically expect.

Comparing Nasdaq’s PE of 34.1x to the Fair Ratio of 18.0x suggests the shares are trading at a meaningful premium to what the underlying fundamentals justify.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Nasdaq Narrative

Earlier, we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. Narratives are a user-friendly approach that lets you express your personal story or perspective on a company, such as Nasdaq, by connecting your own projections for revenue, earnings, and margins to a fair value estimate, and supporting it with the underlying business case you see.

Narratives bring the numbers to life by linking a company's current and future prospects to its ultimate fair value in a way that is customizable, dynamic, and easy to use. On Simply Wall St's Community page, millions of investors are already using this tool to quickly compare their own fundamental outlooks with those of others and with the live market price.

With Narratives, your fair value is automatically updated as new news or earnings are released, enabling you to act on your personal investment thesis. For example, one investor might view Nasdaq as a $115 opportunity because of product innovation and AWS partnerships, while another might set a fair value closer to $74 by citing slower earnings growth and competitive risks.

Do you think there's more to the story for Nasdaq? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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