Is Nvidia the Most Undervalued AI Stock Entering 2026?

The artificial intelligence (AI) sector has become one of the most dynamic and speculative areas of global investing. At the heart of this frenzy lies Nvidia, the chipmaker whose GPUs power the majority of today's AI workloads. As 2026 approaches, investors are grappling with a critical question: Is Nvidia the most undervalued AI stock, or has its valuation already priced in all future growth? To answer this, we must dissect its growth valuation metrics and assess its positioning within the rapidly expanding AI infrastructure market.

Growth Valuation: A Relative Bargain in a Hyped Sector

Nvidia's valuation metrics for 2026 suggest a compelling case for relative undervaluation. As of early 2026, the company trades at a price-to-earnings (P/E) ratio of 42.9x, significantly below the AI industry peer average of 62.3x and its estimated fair P/E of 58.1x according to Simply Wall St. This discount reflects both market caution and the company's disciplined approach to earnings growth. Analysts project a compound annual growth rate (CAGR) of 41% in revenue and earnings per share (EPS) from fiscal 2025 to 2028, driven by its dominance in data center AI and innovations in GPU architecture.

Comparatively, Nvidia's enterprise value (EV) to revenue and EBITDA multiples-22.5x and 37.3x, respectively according to Simply Wall St-appear reasonable when juxtaposed with the exuberance of its peers. For context, companies like AMD and Alphabet trade at higher multiples despite offering less predictable AI growth trajectories. This suggests that Nvidia's valuation, while not cheap by historical standards, is anchored in its ability to convert market leadership into consistent earnings expansion.

Long-Term AI Infrastructure Demand: A Tailwind for Decades

The case for Nvidia's undervaluation gains further strength when viewed through the lens of long-term AI infrastructure demand. According to IDC, global AI infrastructure spending surged to $82.0 billion in Q2 2025, with servers accounting for 98% of AI-centric spending and growing at a staggering 173.2% year-over-year rate. The market is projected to expand to $758 billion by 2029, growing at a 42% five-year CAGR. Crucially, the U.S. and PRC regions-Nvidia's core markets-are expected to grow at 40.5% and 41.5% CAGR, respectively, underscoring the geographic alignment of its business.

Nvidia's dominance in this growth is underpinned by its ecosystem of proprietary technologies, including CUDA and NVLink, which create high switching costs for customers. As data centers transition to AI-ready infrastructure, demand for GPU-optimized systems and liquid cooling solutions-Nvidia's forte-is accelerating. Hyperscalers, which account for a significant portion of AI infrastructure spending, are expected to drive data center equipment and infrastructure spending from $290 billion in 2024 to over $1 trillion by 2030 according to Markets and Markets.

Enterprise AI adoption further reinforces this trend. In Q3 2025, enterprise AI spending reached $37 billion, up from $11.5 billion in 2024, with 65% of companies now regularly utilizing generative AI. Nvidia's role in enabling this shift-from training large language models to inference workloads-positions it to capture a disproportionate share of the value chain. Cowen analysts predict enterprise spending on agentic AI alone could balloon from under $1 billion in 2024 to $51.5 billion by 2028, a segment where Nvidia's partnerships and hardware-software integration provide a clear edge.

Risks and Constraints

No investment thesis is without risks. Nvidia faces intensifying competition from AMD, Intel, and even in-house chip designs from hyperscalers like Google and Meta. Additionally, energy consumption and grid capacity constraints could slow AI infrastructure deployment, particularly in regions reliant on aging power grids. However, these challenges are not unique to Nvidia and are more systemic to the AI sector as a whole. The company's R&D investments in energy-efficient architectures and its strategic acquisitions (e.g., Omniverse for simulation workloads) suggest a proactive approach to mitigating these headwinds.

Conclusion: A Compelling Case for Undervaluation

While Nvidia's valuation is no longer a "steal," its metrics remain attractive relative to both its peers and the explosive growth of the AI infrastructure market. With a P/E ratio below industry averages, a CAGR of 41% in revenue and EPS, and a dominant position in a market projected to grow at 42% annually, Nvidia appears to offer a rare combination of near-term execution and long-term secular growth. For investors willing to look beyond short-term volatility, the stock represents a compelling opportunity to participate in the AI revolution at a price that still reflects caution rather than euphoria.