Nvidia Is Still a Bargain at This P/E—Margin Concerns Aren’t Enough to Break the Bull Case

Nvidia (NVDA) just delivered a strong second quarter, with revenue surging on robust artificial intelligence (AI) infrastructure buildout. Investors responded enthusiastically to the company’s solid growth and upbeat outlook, sending NVDA stock up 8.7% yesterday.

Although Nvidia's stock is trading near record highs, its valuation still looks attractive at the current P/E multiple, especially against the company’s exceptional growth trajectory and expanding AI opportunity.

Margin concerns remain a key issue, but it is unlikely to derail the broader bull case. Nvidia’s accelerating revenue growth, expanding AI demand, and compelling valuation relative to its growth potential continue to support the argument that the stock remains undervalued.

AI Infrastructure Buildout Remains NVDA’s Core Growth Engine

Nvidia delivered another exceptional quarter. Its top line hit $96 billion, more than doubling from the prior-year period. Moreover, Q2 marked the fourth consecutive quarter of accelerating revenue growth.

Nvidia is benefiting from an ongoing surge in AI infrastructure buildout, with demand coming from hyperscalers, AI research companies, AI-native businesses, enterprises, and sovereign customers.

The company’s data center revenue rose 18% sequentially to $89 billion, supported by strong performance across both hyperscale and ACIE. The ACIE category encompasses neocloud providers, industrial customers, and enterprise clients. Hyperscale revenue increased 13% from the previous quarter to $49 billion, reflecting continued demand for its Blackwell platform. ACIE revenue was strong, climbing 25% sequentially and 138% year over year to $40 billion.

Strengthening Nvidia’s position is its full-stack AI factory platform, which continues to expand the company’s addressable data center opportunity. It began shipping Vera Rubin earlier this month. With strong demand, Nvidia expects Vera Rubin to achieve the fastest product ramp in its history.

Nvidia’s networking business also remains solid, with revenue increasing 18% sequentially. Spectrum-X Ethernet revenue jumped 2.6 times. At the same time, the increasing adoption of agentic AI is creating additional demand for data center CPUs.

Management continues to estimate an approximately $20 billion opportunity in the overall server CPU market. Further, due to the strong customer demand, Nvidia expects CPU revenue to more than double by fiscal 2028.

Nvidia Offers Strong Near-Term Revenue Outlook

For the third quarter, Nvidia expects total revenue of approximately $108 billion, up about 12% quarter-over-quarter. Growth is once again likely to be driven by strength in the data center business, with the ACIE division likely to deliver solid growth. Further, hyperscale growth is expected to accelerate again in the fourth quarter and continue into fiscal 2028 as Vera Rubin production and supply increase.

Management expects Vera Rubin to represent roughly 20% of data center revenue in the third quarter. Looking further ahead, Nvidia’s preliminary outlook calls for fiscal 2028 revenue growth of approximately 70% year over year.

Margin to Remain Under Pressure

Despite the strong revenue outlook, rising component costs are pressuring Nvidia’s gross margins. Management said higher memory costs will likely hurt margins in the near term.

As a result, Nvidia expects third-quarter adjusted gross margins of approximately 74% at the midpoint, down 100 basis points sequentially. Further, its gross margins are expected to reach a trough of roughly 71%-72% in the fourth quarter before recovering toward 72%-73% in fiscal 2028, benefiting from pricing increases.

Nvidia’s Valuation Remains Attractive Despite Margin Headwinds

Although margin compression represents a near-term concern, Nvidia’s valuation remains relatively compelling given the company’s exceptional growth profile. NVDA currently trades at approximately 24.2 times forward earnings, a valuation that appears low considering the company’s strong revenue trajectory, significant earnings expansion potential, and the favorable long-term outlook for AI infrastructure.

Nvidia’s earnings are projected to rise by 95.2% in fiscal 2027, with analysts forecasting a further 41.1% increase in the following fiscal year.

Wall Street’s sentiment toward NVDA stock remains positive, with most analysts maintaining a “Strong Buy” rating.

Bottom Line: NVDA Stock Is a Compelling Buy Near Current Levels

Overall, Nvidia’s strong revenue momentum, expanding AI infrastructure opportunity, and robust earnings growth outlook continue to outweigh near-term margin pressures. While higher component costs may weigh on profitability in the coming quarters, the expected margin recovery, combined with rapid growth through fiscal 2028, supports the stock’s long-term investment case.

At about 24 times forward earnings, Nvidia’s valuation remains low, indicating further upside in NVDA stock.