The valuation of American semiconductor company Nvidia has fallen back to pre-AI hype levels. Its market capitalization dropped by over $1 trillion (approximately 1,508 trillion won) in less than two months before partially recovering. While the earnings outlook remains strong, investor interest has shifted towards memory semiconductors and Nvidia's own AI chips, leading to relatively poor stock performance.
Bloomberg reported on July 8 that Nvidia's 12-month forward price-to-earnings ratio (P/E) has fallen to 18. This ratio indicates how many times the stock price is trading relative to expected earnings; a lower number suggests that the stock is undervalued compared to its earnings potential.
Nvidia's P/E is at its lowest level since early 2019, lower than the S&P 500's approximately 20 and the Nasdaq 100's roughly 23. This means Nvidia, often seen as a leader in AI, is being valued less than major U.S. indices.
The stock price reached an all-time high of $235.47 on May 14, with a market cap soaring to $5.7285 trillion (about 8,640 trillion won). However, following a significant correction in semiconductor stocks on June 26, its market cap fell to $4.663 trillion (approximately 7,033 trillion won), erasing $1.655 trillion (around 1,607 trillion won) in just a month and a half.
Since then, the stock has partially recovered, closing at $196.93 on July 7, which is 16% lower than its peak. The market cap has risen to about $4.94 trillion (approximately 7,451 trillion won). However, the stock's year-to-date increase is only 5.6%, lagging behind the gains of the S&P 500 and Nasdaq 100.
The stock's underperformance is not due to a deteriorating earnings outlook. Bloomberg's projections for Nvidia's fiscal year 2027 estimate revenues of $393 billion (approximately 593 trillion won) and net income of $228 billion (around 344 trillion won), representing increases of 90% and 82%, respectively, from the previous year. The net income forecast has been raised by 13% over the past three months.
Despite this, the stock's struggles are largely attributed to a shift in investor interest towards other semiconductor stocks. Micron's stock has surged over 200% this year, driven by expectations of rising prices for high-bandwidth memory (HBM). AMD and Intel have also seen significant gains. Analysts suggest that the benefits of AI infrastructure investment are extending beyond graphics processing units (GPUs) to memory and central processing units (CPUs).
Additionally, major Nvidia clients like Alphabet and Amazon are expanding their own AI chip development, which adds pressure. Large tech companies are looking to reduce costs and manage supply chains directly, thereby decreasing their reliance on Nvidia.
Nevertheless, Wall Street remains optimistic. Among 82 analysts covering Nvidia, only one has a sell rating. The average price target is $302, more than 50% above the current stock price. The market believes that while Nvidia may be temporarily sidelined in the memory stock rally, its earnings growth could eventually support a rebound in its stock price.
* This article has been translated by AI.
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