Despite a recent decline NVIDIA (NASDAQ: NVDA) The stock has been on a tear since the beginning of 2023, gaining more than 600%. The market capitalization rose from $360 billion to $2.5 trillion during this period – the fastest pace of value creation in the history of the stock market.

But is that justified? Some analysts on Wall Street believe Nvidia stock is overvalued, and given the price-to-earnings (P/E) ratio, they may be right in the short term. The P/E ratio is calculated by dividing a company’s share price by its earnings per share (EPS), and is one of the most widely used valuation metrics among investors.

The Nasdaq-100 The Nvidia index, which includes Nvidia and all of its big-tech competitors, trades at a P/E of 30.7. Nvidia stock trades at a P/E of around 58, based on earnings per share of $1.80 over the past 12 months, making it nearly twice as expensive as the index.

Based on these numbers alone, Nvidia stock is undoubtedly expensive. However, the company is growing so fast that if you look just one year into the future, the situation changes completely. Wall Street estimates that Nvidia will generate earnings per share of $3.74 in fiscal year 2026 (which begins January 30, 2025), which means that on a forward-looking basis, the stock is even cheaper than the Nasdaq-100:

Nvidia’s data center chips are critical to the development of artificial intelligence (AI), and although competition is starting to emerge, the company has already built a significant technological lead. Data center revenue grew 427% last quarter, and demand is not expected to slow down anytime soon.

For investors with an investment horizon of at least several years, Nvidia shares could actually be a bargain at the moment.

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Anthony Di Pizio does not own any stocks mentioned. The Motley Fool owns Nvidia and recommends the company. The Motley Fool has a disclosure policy.

Think Nvidia stock is expensive? This chart might change your mind. was originally published by The Motley Fool.