Trade War Transforms Nvidia Into Bargain-Priced Tech Giant

The world’s dominant AI chip company has unexpectedly joined the ranks of reasonably valued stocks. Nvidia, once commanding stratospheric premiums, now trades at just 21 times estimated earnings—barely above the S&P 500’s average multiple of 19—following a steep 25% decline this year that has dramatically outpaced the broader market’s retreat, according to Yahoo Finance.

This valuation compression has occurred despite Nvidia’s projected revenue growth of 57% in the current year, which dwarfs the S&P 500’s modest 4.7% expected increase. The disconnect between growth prospects and market pricing has created what may be one of the most unusual valuation scenarios in the company’s history.

“That Nvidia only trades at a slight premium to the market is notable given the company’s growth is expected to be dramatically faster,” notes investment strategist Rebecca Wilson. “This type of valuation disconnect typically occurs when the market questions whether future growth will materialize as expected.”

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From Expensive to Second-Cheapest “Magnificent Seven” Stock

The transformation in Nvidia’s relative valuation has been remarkable. Looking at the price-to-earnings-to-growth (PEG) ratio, which incorporates analysts’ five-year earnings growth projections, Nvidia now ranks as the second-cheapest among the “Magnificent Seven” tech giants with a ratio of just 1.02, according to The Motley Fool.

This stands in stark contrast to the company’s trailing price-to-earnings ratio of 35.5, which remains the second-highest in the group. The divergence between backward-looking and forward-looking valuations highlights how dramatically the market’s perception of Nvidia’s future has shifted in recent months.

The stock’s sharp decline began in January when Chinese AI company DeepSeek introduced a powerful large language model developed at a relatively low cost, raising concerns about future demand for Nvidia’s expensive GPUs. President Trump’s tariff announcements further pressured the entire tech sector, with Nvidia suffering disproportionate damage.

H20 Restrictions Create $5.5 Billion Hit

The latest blow came when U.S. authorities barred Nvidia from selling its H20 chip line in China, a decision that will cost the company approximately $5.5 billion. This government action represents a significant strategic shift—a willingness to damage one of America’s most valuable companies to advance geopolitical objectives related to technology containment, according to Quartz.

Making matters worse, reports that Huawei plans to begin mass shipments of its own advanced AI chip—the 910C—as early as next month suggest the restrictions may be accelerating China’s domestic semiconductor capabilities rather than hindering them. This development underscores the complex, often counterintuitive outcomes of trade restrictions in the highly globalized semiconductor industry.

Nvidia CEO Jensen Huang traveled to China last week in an apparent damage control effort, attempting to reassure partners and regulators that the company still wants to do business there despite the mounting regulatory challenges.

Wall Street Remains Bullish Despite Headwinds

Remarkably, Wall Street has maintained overwhelming optimism about Nvidia’s prospects despite these challenges. Nearly 90% of analysts tracked by Bloomberg still recommend buying the stock, and shares trade more than 60% below the average analyst price target—creating one of the largest gaps between market prices and expert valuations in recent years.

This disconnect suggests either that analysts have been slow to adjust their expectations to new realities, or that the market has overreacted to recent developments. For long-term investors, this divergence potentially creates a compelling entry point.

“Politics will remain part of the investment landscape for the foreseeable future, and the landscape will continue to evolve,” said Daniel Flax, senior research analyst at Neuberger Berman. “This will impact many companies, including Nvidia, but I think it will continue to execute and innovate, and that will continue to drive growth. I think shares look pretty attractive if you have a 12- or 18-month time horizon.”

AI Spending Remains the Critical Variable

The key factor determining Nvidia’s future may not be the Chinese market but rather the spending patterns of major cloud providers. Microsoft, Alphabet, Amazon, and Meta Platforms—among Nvidia’s biggest customers—have allocated tens of billions of dollars to build out AI infrastructure.

However, uncertainty looms over these investment plans. Microsoft has announced intentions to pull back on some data center projects, while others have maintained current-year capital spending plans but remain noncommittal about 2026 outlooks.

“If you want to buy here, you’re probably betting on hyperscaler demand for AI,” said Krishna Chintalapalli, portfolio manager at Parnassus Investments. While the intent to spend on AI remains, “they can always slow down on the margins” given macroeconomic and tariff concerns.

As Nvidia approaches its late May earnings report, investors will be watching closely for signs that the company can navigate these complex challenges while maintaining its technological leadership in the rapidly evolving AI chip market.

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