Nvidia's stock price is undervalued. What does this signal mean?

A trader on the New York Stock Exchange trading floor.

A set of data is shocking: the financial data platform Koyfin shows that, based on the price-to-earnings (P/E) ratio, Amazon’s stock was last undervalued like it is now, during the 2008 financial crisis. In fact, Amazon’s stock price has already fallen to a historic first time level below Walmart.

Given that Amazon’s annual revenue growth rate is about 12% or higher, while Walmart’s growth is only close to 5%, the valuation gap between the two is completely illogical. Equally unreasonable is the fact that the current forward P/E ratio expected for AI chip giant Nvidia has fallen to its lowest level in seven years; the valuations of Microsoft and Oracle are even converging for the first time in a decade. Is this a case of some kind of “selective AI warning syndrome”? (If so, what does this mean for the pre-IPO prospects of OpenAI and Anthropic?)

Admittedly, affected by the Iran conflict, the entire market saw a sell-off over the past month. But this cannot explain why these stocks are so severely undervalued. Nvidia’s closing price on Monday was $165.17, implying a forward P/E ratio of only 19.9 times. By comparison, Apple’s forward P/E ratio is 28.7 times.

Considering the growth rates of both, does this make sense? S&P Global Market Intelligence shows that, as of January of next year, Nvidia’s revenue is expected to grow by 71%; while as of this September, Apple’s revenue is expected to grow by only 12%. Even if it is assumed that Nvidia’s growth rate slows significantly in the coming years, its performance is still expected to surpass Apple’s.

It could be said that Nvidia is at least the biggest beneficiary of the AI boom so far. Apple, on the other hand, has hardly benefited from it. But investors apparently don’t seem to care.

What about other tech giants like Microsoft? After its stock price fell by about 26% since the beginning of this year, this software giant’s expected P/E ratio is 20.4 times, while Oracle—its smaller cloud computing and software competitor—is at 18.5 times. Koyfin data shows that two years ago, Microsoft’s expected P/E ratio was 34 times, and Oracle’s was 20 times.

According to S&P data, one reason for Microsoft’s stock decline might be that analysts expect its year-over-year revenue growth to stagnate at around 16% over the next few years, similar to recent years. By contrast, as of fiscal 2028, Oracle’s revenue growth is expected to soar to 46.5%, while in fiscal 2025 ending last May, its growth was only 8.4%.

But Oracle’s scale is far smaller than Microsoft’s, which makes the growth comparison skewed. In addition, Oracle is borrowing heavily to fund expansion, carrying far higher risk than Microsoft. This might be what people call the AI opportunity.

Other updates

Apple’s crackdown on ambient programming-type applications is escalating. We exclusively reported today that this iPhone maker removed the app Anything from the App Store last Thursday. This move has intensified the view that Apple is cracking down on applications it sees as threats to its own business.

In fact, it is hard to accurately judge Apple’s true motives for doing this. As we reported today, it may be worried that a large number of low-quality apps will flood into the app store. At present, there are indeed many new AI apps in the App Store whose quality varies widely. Whatever the reason, Apple must be aware that regulators and politicians are closely watching.

Other headlines

• Nasdaq will revise its rules for its flagship stock index to allow newly listed companies to be included in the index more quickly, a move that will benefit companies like SpaceX, which are expected to have major IPOs this year.
• On Monday, Microsoft announced new features for its 365 Copilot software. The software integrates OpenAI and Anthropic’s AI technologies to automate office work across Office and Teams products.

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Responsible editor: Guo Mingyu