NVIDIA's stock valuation has dropped to levels not seen in over a decade. Although the company continues to post rapid revenue and profit growth, market scrutiny over the sustainability of its earnings expansion is intensifying.

According to data compiled by Bloomberg, NVIDIA's current price-to-earnings ratio has fallen below 17 times, roughly half of the level seen in 2025 and significantly lower than the more than 25 times recorded in May of this year. Meanwhile, the broader semiconductor sector has shown robust strength, with the Philadelphia Semiconductor Index gaining nearly 76% year-to-date, while NVIDIA has risen about 20% in the same period, ranking fifth from the bottom among index constituents.

At the Goldman Sachs technology conference earlier this month, NVIDIA CEO Jensen Huang addressed the company's market positioning. He called NVIDIA "the world's first and only growth value stock" and stated that the company is "severely misunderstood." Given the recent valuation and stock price performance, investors remain focused on whether NVIDIA's current earnings levels can be sustained.

Fundamentals remain strong, but valuation continues to face pressure

From a financial perspective, NVIDIA's growth momentum remains robust. The company's revenue is projected to grow 90% year-over-year in fiscal 2027, ending January next year, with net profit growth expected at 99%, both exceeding the 65% growth rate of the previous fiscal year. In the second-quarter earnings report released last month, NVIDIA also guided for 70% sales growth in fiscal 2028, notably higher than the 45% previously expected by the market.

However, strong earnings expectations have not translated into corresponding stock price gains. NVIDIA shares have risen about 22% year-to-date, compared with a roughly 25% gain for Apple over the same period, while Intel and Advanced Micro Devices have both surged more than 180%.

Eli Horton, senior portfolio manager for TCW's thematic and enduring growth equities strategies, said the sharp valuation decline reflects market uncertainty about whether NVIDIA's current profit levels can be maintained. "Given such strong fundamentals, the stock's performance is surprising, but it indicates that market expectations remain below current analyst consensus."

Gross margins face pressure, and the competitive landscape is shifting

Beyond valuation changes, profitability itself is drawing market attention. According to average analyst estimates compiled by Bloomberg, NVIDIA's second-quarter gross margin was approximately 75%, with expectations of a decline to below 72% by the fourth quarter before a gradual recovery. Rising costs for key components such as memory chips are one factor putting pressure on gross margins.

David Russell, global head of market strategy at TradeStation, believes gross margin changes are a key factor influencing NVIDIA's valuation. Meanwhile, customer-developed custom chips could also alter the competitive landscape. Both Meta Platforms and Alphabet are advancing their own in-house AI chips, and some major customers are seeking to reduce their dependence on NVIDIA.

Russell noted that as customers add alternative solutions, NVIDIA's market share and pricing power may face some pressure, which also creates uncertainty about whether gross margins can improve further. He believes that whether the valuation multiple can re-expand will depend on the company's future earnings growth and changes in the competitive landscape.

AI capital expenditure remains a key variable, with no clear signs of near-term slowdown

Another concern regarding NVIDIA's outlook centers on AI infrastructure investment. As data center construction scales up, the market is beginning to question whether the current elevated levels of AI capital spending can be sustained, with the high-interest-rate environment also increasing the cost of capital for such investments.

Earlier this month, some voices in the AI community called for slowing down the development of the most advanced AI models, which briefly triggered a pullback in the semiconductor sector, with the Philadelphia Semiconductor Index falling nearly 6% on September 14.

However, no clear signs of a slowdown in AI infrastructure investment have emerged so far. Early positive performance from Meta's new AI assistant has also improved market expectations for AI chip demand, driving the Philadelphia Semiconductor Index up 4.3% on Monday, its largest single-day gain since August 4.

Horton believes NVIDIA's current valuation already reflects some expectations of a slowdown in AI capital expenditure. Further validation of this concern would require a clear reduction in capital spending by hyperscale cloud providers or significant regulatory policy changes, neither of which has materialized so far.

Over the past four years, NVIDIA's stock price has surged more than 1,600%, and the company briefly became the world's most valuable corporation. Meanwhile, its revenue has grown from approximately $27 billion in fiscal 2023 to a projected $410 billion in fiscal 2027. As NVIDIA has become one of the most representative companies in the AI investment cycle, its earnings growth, gross margin changes, and customer demand continue to draw sustained market attention.