Why Nvidia's Valuation Still Offers Convincing Upside for Long-Term Investors in 2025

Nvidia’s Q2 2025 financial results underscore its dominance in the AI and data center markets, with revenue surging to $46.7 billion—a 56% year-over-year increase—driven by the Blackwell AI platform’s adoption [1]. The data center segment alone contributed $41.1 billion, accounting for 88% of total revenue, while non-GAAP gross margins hit 72.7%, reflecting pricing power and operational efficiency [1]. Free cash flow of $13.45 billion further solidifies the company’s ability to fund innovation and return capital to shareholders, with $24.3 billion returned to investors in the first half of 2026 alone [1].

Despite a trailing P/E ratio of 57.7x—well above the semiconductor industry average of 33x—Nvidia’s valuation remains rationalized by its growth trajectory. Analysts project free cash flow to reach $210.2 billion by 2030, supporting a discounted cash flow (DCF) model that estimates an intrinsic value of $114.89 per share [2]. While this suggests the stock is overvalued by 58.1% using traditional metrics, the PEG ratio of 0.68 (calculated as P/E divided by 5-year EBITDA growth of 82.3%) indicates undervaluation relative to its growth [2]. The AI semiconductor sector’s P/E of 69.33 further contextualizes Nvidia’s 59.60 multiple as a discount to the industry, highlighting its conservative growth expectations compared to peers [2].

Nvidia’s leadership in AI infrastructure is a critical differentiator. CEO Jensen Huang has positioned Blackwell as the “central platform” for the AI race, with data center revenue growing 17% sequentially in Q2 2025 [1]. This momentum is underpinned by surging demand for AI training and inference, where Nvidia’s GPUs remain unmatched in performance and ecosystem integration. Analysts at Citi, who raised their price target to $210, argue that the company’s “moat” in AI hardware and software will sustain its dominance despite competitive pressures from AMD and Intel [2].

Geopolitical headwinds, such as restrictions on H20 chip sales to China, have limited near-term revenue potential. However, these constraints are seen as temporary, with the broader AI market expected to expand as adoption accelerates in cloud providers, enterprises, and governments. The recent $60 billion share repurchase authorization also signals management’s confidence in the stock’s long-term value [1].

In conclusion, Nvidia’s valuation, while elevated, is justified by its unparalleled cash flow growth, market leadership, and the transformative potential of AI. For long-term investors, the stock’s current multiple appears to discount future cash flows at a reasonable rate, particularly when compared to the sector’s average PEG ratio of 1.575 [2]. As the AI infrastructure market matures, Nvidia’s ability to capture incremental demand and maintain pricing power will likely validate its premium valuation.

Source:
[1] NVIDIA Announces Financial Results for Second Quarter Fiscal 2026 [https://nvidianews.nvidia.com/news/nvidia-announces-financial-results-for-second-quarter-fiscal-2026]
[2] Evaluating NVIDIA's Value After Q2 Earnings and China's AI [https://finance.yahoo.com/news/evaluating-nvidia-value-q2-earnings-100803494.html]