Think Nvidia Stock Is Expensive? This Chart Might Change Your Mind.

Artificial intelligence (AI) is rapidly transforming the global economy. The technology's ability to automate complex workflows and deliver predictive insight has ushered in a new era of business efficiency while amplifying human creativity. Perhaps no other company has played a bigger role in the AI revolution than Nvidia (NASDAQ: NVDA). The chip giant's accelerated computing GPUs are now recognized as the backbone of AI infrastructure, powering the most innovative applications.

Through that success, shareholders have been rewarded handsomely, with Nvidia stock returning a whopping 1,604% in the past five years. Some investors, seeing that performance, may assume the stock is now too expensive or overvalued. That thinking risks overlooking the big picture, which is Nvidia's massive growth and earnings momentum.

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Considering those fundamental tailwinds, Nvidia stock may still be attractively priced. Here's why.

Nvidia shares offer good value

The latest financial trends from Nvidia were outstanding. For the fiscal year ended Jan. 26, revenue climbed by 114% year over year, driving adjusted earnings per share (EPS) to $2.99, increasing by an even stronger 130% from last year. Wall Street analysts tracked by Yahoo! Finance expect the blistering pace to continue, projecting another 56% revenue growth this year with an EPS target of $4.50 in fiscal 2026.

The result is that Nvidia stock is now trading at a forward price-to-earnings (P/E) ratio of 26, well below the five-year average above 70 for the company's earnings multiple. By this measure, Nvidia stock appears downright cheap, especially with no signs that demand for its AI chips is slowing down.

NVDA PE Ratio (Forward) data by YCharts

What's next for Nvidia stock?

There isn't a single data point or valuation metric that alone determines whether a stock is cheap or expensive. The good news is that Nvidia is well-positioned to maintain its AI dominance in a secular growth story that is far from over. With AI adoption accelerating globally, Nvidia remains a best-in-class stock for tech sector exposure.

Should you invest $1,000 in Nvidia right now?

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Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.