Nvidia Stock: Why It's Likely to Get Cheaper After Earnings

Nvidia (NVDA) is set to report its second-quarter earnings on Wednesday, and investors are bracing for another blockbuster report. The company is expected to post revenue of $92.2 billion, a 97.2% year-over-year increase, marking its fourth consecutive quarter of accelerating revenue growth. This comes after a period where the stock's performance has been relatively flat, up just 19% over the last year, matching the S&P 500's return.

Despite the strong growth, Nvidia's stock price has not kept pace with its earnings surge, making it significantly cheaper on a forward basis. Based on analyst consensus EPS of $9.02 for fiscal 2027, the stock trades at just 23.6 times forward earnings, roughly in line with the S&P 500's multiple. This is a stark contrast to its historical premium, suggesting the market may be undervaluing its growth potential.

Historically, Nvidia's forward earnings estimates have consistently been revised upward following its earnings reports. The last four earnings announcements have each been accompanied by noticeable increases in consensus estimates for the next fiscal year. This trend reflects the company's ability to exceed expectations and the growing demand for its AI chips, particularly with the upcoming Rubin platform.

Recent developments, such as SpaceX announcing it will exclusively use Nvidia for its AI infrastructure, underscore the company's dominant position in the AI chip market. This momentum is likely to continue, and analysts expect that after Wednesday's report, forward estimates will be revised even higher, further reducing the stock's forward P/E ratio.

In summary, Nvidia's business is firing on all cylinders, but the stock price has lagged. If history is any guide, the post-earnings estimate revisions will make the stock even cheaper, presenting a potential buying opportunity for investors.

For investors, the key takeaway is that Nvidia's valuation is becoming increasingly attractive relative to its growth. With a forward P/E of 23.6, the stock is trading at a discount to its historical average and in line with the broader market, despite growing at nearly 100% annually. This disconnect between price and fundamentals suggests that the market may be underestimating Nvidia's long-term earnings power.

The consistent upward revision of forward estimates is a critical signal. It indicates that Wall Street's models are catching up to the reality of AI-driven demand, and each earnings beat forces analysts to raise their future projections. This dynamic creates a virtuous cycle where the stock becomes cheaper on a forward basis, even if the share price remains flat or declines slightly.

Looking ahead, Nvidia's Rubin platform is expected to be a major growth driver, with major customers like SpaceX committing to exclusive use. This validates the company's technological leadership and suggests that demand will remain robust for years to come. As AI adoption expands across industries, Nvidia is well-positioned to capture a significant share of this growing market.

However, risks remain. The stock's recent underperformance could be a sign of market saturation or increased competition from rivals like AMD and custom chip makers. Additionally, any disappointment in guidance could trigger a sell-off, given the high expectations. But the historical pattern of estimate revisions suggests that the risk-reward is skewed to the upside.

In conclusion, Nvidia's earnings report is not just about the numbers; it's about the forward outlook. If estimates rise as expected, the stock will become even more attractive, making it a compelling investment for those with a long-term horizon.