Is There Still Room for Nvidia Shares After xAI’s Massive $18B Chip Deal?

If you have been watching NVIDIA’s stock lately, you are not alone. Whether you are wondering if it is time to buy, hold, or take some chips off the table, the movements in NVIDIA shares have been hard to ignore. After all, this stock has soared more than 1,500% over the last three years and gained nearly 40% in the past year alone. Even in the last month, it surged almost 10%, but there have been some bumps. Just last week, shares dipped by 1.2%, a move some investors tied to questions around how quickly companies like Oracle can rent out NVIDIA’s prized AI chips, or the news that some large international chip deals are still waiting in the wings.

That said, demand for NVIDIA’s technology does not seem to be slowing, with deals from names like xAI planning to spend billions more on NVIDIA hardware, and a flurry of partnerships sparking excitement around AI growth. However, while the hype is real, valuation needs to come back into focus. Based on six key valuation checks, NVIDIA scores a 2, which means it is undervalued in just two areas. It is worth asking, in the middle of all this activity, does the stock still have room to run, or are expectations outpacing reality?

Let’s dive into the different ways analysts measure valuation, and at the end, I will share a smarter lens for thinking about what this all truly means for investors like you.

NVIDIA scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: NVIDIA Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's value by projecting its future cash flows and then discounting those values back to today. This approach provides an intrinsic estimate of what a business is really worth, independent of market mood swings.

NVIDIA's latest twelve-month Free Cash Flow (FCF) reaches about $72.28 billion, reflecting its significant role in the semiconductor industry. Analysts have projected NVIDIA's FCF to keep rising strongly, with estimates reaching roughly $249.21 billion by 2030. For the next five years, cash flow projections are based on actual analyst consensus, while projections beyond 2029 use trend-based methods to extend the picture through 2035, where discounted cash flows gradually moderate.

When all these future streams of cash are added up and discounted, the intrinsic value per share comes out at $141.12 according to this model. Compared to the current market price, this reflects a 31.1% premium. In other words, NVIDIA stock is considered 31.1% overvalued on this basis.

Result: OVERVALUED

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

Our Discounted Cash Flow (DCF) analysis suggests NVIDIA may be overvalued by 31.1%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: NVIDIA Price vs Earnings

For profitable companies like NVIDIA, the Price-to-Earnings (PE) ratio is a widely used valuation metric because it tells investors how much they are paying for each dollar of current earnings. It is straightforward, market-recognized, and especially relevant for companies that consistently turn profits, as is clearly the case with NVIDIA.

A "normal" or "fair" PE ratio is shaped by market expectations for future growth, the perceived risks to those earnings, and how those factors stack up against both industry peers and the market as a whole. Higher expected growth or a stronger market position can justify a higher PE, while more risk or slowing momentum typically commands a lower one.

Currently, NVIDIA trades at a PE of 51.9x, significantly above the semiconductor industry average of 37.8x and even higher than many of its peers, which average 62.5x. But numerical averages do not always capture the full story. That is where Simply Wall St's "Fair Ratio" comes in. For NVIDIA, the Fair Ratio stands at 58.0x. This figure accounts for NVIDIA's projected earnings growth, strong profit margins, its enormous scale, and the unique risks and opportunities it faces as an AI leader. Unlike basic peer or industry comparisons, the Fair Ratio provides a nuanced benchmark tailored to NVIDIA’s strengths and context.

With the actual PE of 51.9x sitting a bit below the Fair Ratio of 58.0x, this signals NVIDIA is valued about right by this measure, not glaringly cheap, but not alarmingly expensive either.

Result: ABOUT RIGHT

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 NVIDIA Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. A Narrative is your story about a company, where you link your own expectations and perspective on NVIDIA’s future to actual numbers, like fair value, future revenue, earnings, and profit margins.

Rather than just applying a one-size-fits-all metric, Narratives empower you to combine your view on NVIDIA’s technology, growth prospects, and risks, and see how that translates to a practical financial forecast and a personalized fair value. Narratives are accessible tools available to all investors on the Simply Wall St Community page, making it easy to take control of your investment thinking alongside millions of others.

The real power of Narratives is that they do not stand still; your fair value estimate automatically updates whenever key facts change, whether it is new earnings, regulatory news, or shifts in market sentiment. Narratives help you track how your fair value compares to NVIDIA’s current share price, so you can confidently decide when you think it is time to buy, hold, or sell.

For example, among the many Narratives on Simply Wall St, some see NVIDIA’s fair value as low as $68 per share (based on concerns about future competition and slowing growth), while others project values above $340 (reflecting confidence in relentless AI demand and platform dominance). This demonstrates just how dynamic, personal, and insightful this approach can be for every investor.

For NVIDIA, we'll make it easy for you by providing previews of two leading NVIDIA Narratives:

🐂 NVIDIA Bull Case

Fair Value: $213.99

Undervalued by 13.5%

Revenue Growth Rate: 26.86%

• AI adoption and digitization are driving multi-year demand, enabling strong and visible top-line growth for NVIDIA across diverse sectors.
• Continuous product innovation and expansion into full-stack AI infrastructure deepen customer reliance and support high margins.
• Risks include geopolitical tensions, supply chain fragility, vertical integration by major customers, and increasing power and regulatory constraints that could limit growth or market share.

🐻 NVIDIA Bear Case

Fair Value: $141.74

Overvalued by 30.5%

Revenue Growth Rate: 17.2%

• Data center and enterprise hardware sales are set to be the primary growth drivers as AI adoption expands industry-wide, but energy and sustainability constraints pose increasing challenges.
• NVIDIA’s dominance in consumer GPUs and gaming remains strong, with growth supported by industry expansion and technological advances, but margin pressure and increased competition are expected over time.
• Risks involve growing competition, high consumer GPU pricing amidst macro challenges, regulatory hurdles for expansion, and potential supply chain disruptions.

Do you think there's more to the story for NVIDIA? 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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