Why Nvidia’s Forward P/E Fell Below 17 Despite Surging AI Sales

Nvidia’s valuation can fall while its business grows and its shares remain expensive in absolute terms. Bloomberg reported on September 22 that the stock traded at less than 17 times expected profit over the next 12 months—about half its 2025 multiple and near its cheapest level in more than a decade. Its explanation was that investors were reluctant to assume Nvidia could keep delivering extraordinary results. 1722

How can the P/E fall while the share price holds up?

A forward price-to-earnings ratio divides the current share price by forecast earnings per share. If earnings estimates rise faster than the stock, the ratio falls. Strong sales and a low relative valuation are therefore compatible; neither establishes that future profits are secure.

The growth behind those estimates is substantial. Contemporary coverage said Nvidia’s revenue and net income were each expected to rise by roughly 90% or more in its current fiscal year. Its quarterly data-center sales had climbed 117% from a year earlier. Those figures describe recent performance and forecasts, not a guarantee that growth will continue at the same pace. 636

The risk investors are pricing in

Profitability is one concern. Nvidia reported a 75% gross margin for its second fiscal quarter, while a subsequent report projected a drop below 72% by the fourth quarter. Nvidia’s nearer-term guidance was for approximately 74% in the third quarter. Higher memory costs have also been identified as a pressure on margins. A smaller margin would leave less gross profit from each dollar of sales, even if revenue kept rising. 39254037

Competition is another. Reporting on the valuation debate points to major technology customers developing in-house chips. If customers shift some workloads to their own silicon, Nvidia could face pressure on sales or pricing without a broader decline in AI spending. How much business such chips might displace remains uncertain. 31

TCW portfolio manager Eli Horton described the lower multiple as evidence of skepticism about whether Nvidia’s current earnings power is sustainable. That is the central distinction: investors can believe demand is strong today while assigning a lower value to profits they consider difficult to repeat. 25

Why Huang and analysts see a different outcome

At a September 10 Goldman Sachs conference, CEO Jensen Huang called Nvidia a “growth value stock” and reiterated that its revenue could grow 70% in the next fiscal year. He also projected annual global AI infrastructure spending of $3 trillion to $4 trillion by 2030. Those are forecasts, not realized sales; spending across the industry would not all become Nvidia revenue. 42435051

That outlook helps explain why analysts continued to publish bullish targets. One September 17 snapshot put the average target at $324.34 with an average Buy rating; a September 24 report put the target at $327.70. Against the September 24 closing price of $224.58, either target implies more than 40% upside—but a price target is an opinion, not an expected return. 47714

The exact P/E needs a qualification. Although Bloomberg reported less than 17 on September 22, a September 24 analysis calculated a forward P/E of about 25. The supplied reports do not reconcile their earnings estimates or calculation methods, so “below 17” should not be treated as an uncontested September 24 reading. Under either estimate, the investment question is the same: whether future earnings will justify the price investors pay today. 177