NVIDIA Trades at a Premium Valuation: Should You Still Buy the Stock?

NVIDIA Corporation NVDA shares are currently trading at a premium, as suggested by the Value Score of D. The stock is trading at a premium, with a forward 12-month price-to-earnings (P/E) multiple of 37.06 compared with the Zacks Computer and Technology sector’s 25.60.NVIDIA Forward 12-Month P/E RatioImage Source: Zacks Investment ResearchCompared to other semiconductor peers, NVIDIA has a higher P/E multiple than Advanced Micro Devices, Inc. AMD, Broadcom Inc. AVGO and Marvell Technology, Inc. MRVL. Currently, Advanced Micro Devices, Broadcom and Marvell Technology trade at P/E multiples of 36.39, 28.94 and 26.50, respectively.A robust rise in the share price has led to NVIDIA’s premium valuation multiple. NVDA shares have soared 37.9% over the trailing 12 months, outperforming the sector’s rise of 23%. Compared with major semiconductor players, the stock has outpaced Marvell Technology while underperforming Advanced Micro Devices and Broadcom.Over the past year, shares of Advanced Micro Devices and Broadcom have soared 85.3% and 40.5%, respectively. Marvell Technology stock has plunged 37.1% over the same time frame.NVIDIA One-Year Price Return PerformanceImage Source: Zacks Investment ResearchGiven a robust upswing in share prices and premium valuation, investors might be wondering if they should buy, sell or hold NVDA stock. We opine that NVIDIA’s back-to-back quarters of strong financial performance, solid fundamentals and long-term outlook justify the premium valuation.NVIDIA has been a key beneficiary of the artificial intelligence (AI) boom, which has driven strong demand for its graphics processing units (GPUs) and computing solutions. As the demand for hardware supporting AI and high-performance computing is likely to remain strong, NVDA is well-positioned to benefit. This makes the stock a better investment option right now.NVIDIA’s Resilient Financial PerformanceDespite ongoing macroeconomic challenges, geopolitical issues, and trade and tariff wars, NVIDIA’s financials remain rock solid. In the third quarter of fiscal 2026, revenues jumped 62% from the year-ago quarter, while non-GAAP earnings per share rose 60%.NVIDIA’s outlook for the fourth quarter of fiscal 2026 remains upbeat. The company expects fourth-quarter revenues to increase 66% year over year to $65 billion, reflecting continued momentum in AI-driven demand. The gross margin is expected to be strong at 75%, indicating a 150-basis-point improvement from the year-ago quarter.The Zacks Consensus Estimate for fiscal 2026 and 2027 suggests continued growth momentum for the company’s top and bottom lines.Image Source: Zacks Investment ResearchNVIDIA’s cash flow generation also remains robust. It generated free cash flow of $23.75 billion in the fiscal third quarter and $66.53 billion in the first three quarters of fiscal 2026. The company ended the fiscal third quarter with $60.6 billion in cash, cash equivalents and marketable securities, up from $56.8 billion in the previous quarter.This strong liquidity position enables NVIDIA to reinvest in research and development, expand manufacturing capabilities and return capital to shareholders. In the fiscal third quarter, the company returned $243 million to its shareholders through dividend payouts and repurchased stocks worth $12.46 billion. In the first three quarters of fiscal 2026, NVIDIA paid out $732 million in dividends and bought back shares worth $36.27 billion.NVIDIA’s Data Center Business: A Key Growth CatalystNVIDIA’s most powerful growth engine continues to be its Data Center business. In the third quarter of fiscal 2026, the segment generated $51.22 billion in revenues, representing 89.8% of total sales. This marked a staggering 66% year-over-year increase and 25% sequential growth.The robust performance was mainly driven by higher shipments of the Blackwell GPU computing platforms that are used for the training and inference of large language models, recommendation engines and generative AI applications.The demand for NVIDIA’s Hopper 200 and Blackwell GPU computing platforms has been a key catalyst as cloud providers and enterprises scale their AI infrastructure. Large cloud service providers contributed to the majority of Data Center revenues, indicating continued hyperscale investment in AI-driven computing.With AI adoption accelerating across industries, NVIDIA's stronghold in data centers makes it a critical beneficiary of this trend. The company’s leadership in AI chip development positions it well for sustained revenue growth in this segment.Conclusion: Buy NVDA Stock for NowNVIDIA’s strong fundamentals, dominant position in AI and impressive growth outlook make a compelling case for an investment. While valuation is on the higher side, the company’s momentum, both operationally and financially, supports buying the stock.Currently, NVIDIA carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Zacks' Research Chief Names "Stock Most Likely to Double"Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.This top pick is a little-known satellite-based communications firm. Space is projected to become a trillion dollar industry, and this company's customer base is growing fast. Analysts have forecasted a major revenue breakout in 2025. Of course, all our elite picks aren't winners but this one could far surpass earlier Zacks' Stocks Set to Double like Hims & Hers Health, which shot up +209%.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Advanced Micro Devices, Inc. (AMD): Free Stock Analysis Report NVIDIA Corporation (NVDA): Free Stock Analysis Report Marvell Technology, Inc. (MRVL): Free Stock Analysis Report Broadcom Inc. (AVGO): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks