In the Near Future, You'll Regret Not Investing in This Underappreciated Share

Investing in establishment enterprises with reasonable stock prices for an extended period is one of the finest methods to generate income in the stock market. This approach allows investors to capitalize on lasting development trends and groundbreaking technologies. This is partly why purchasing shares of Nvidia (NVDA -2.09%) now could prove to be a smart long-term decision.

The company boasts vast addressable markets and, to some extent, appears to be underpriced. Of course, the stock has also nearly quadrupled in value over the previous year. This has some questioning if Nvidia stock is overvalued at the moment. A closer examination of Nvidia's growth rate indicates it may be more undervalued overall. Investors may come to regret not purchasing this semiconductor giant before it soars even higher. Let me explain.

Here's why Nvidia stock is undervalued

Nvidia's trailing price-to-earnings (P/E) ratio of 70 is undeniably extravagant and may suggest overvaluation, particularly when compared to the U.S. tech sector's average P/E ratio of 44.5. However, with a forward-earnings multiple of 46, there are clear signs of a significant increase in its revenue. That forward P/E is almost on par with the U.S. tech sector's average.

Analyzing beyond the next year, Nvidia's forward P/E drops even further.

Nvidia is also quite affordable when you consider its price-to-earnings-to-growth (PEG) ratio, a valuation metric that takes a company's potential growth into account.

The PEG ratio is calculated by dividing a company's trailing P/E by the expected growth it could deliver in the future. This is a forward-looking valuation metric that gives investors a better understanding of how Wall Street is valuing a stock based on its future earnings growth. Investors should take note that a PEG ratio of less than 1 means that a stock is undervalued. Consequently, based on the chart above, Nvidia's PEG ratio of just 0.09 makes it incredibly undervalued.

Buying Nvidia at this valuation seems like a no-brainer as the company estimates a $1 trillion potential revenue opportunity across various sectors.

The chip giant's extraordinary growth shows no signs of slowing down

Nvidia generated approximately $80 billion in revenue over the previous 12 months. Recently, the company has begun growing at an extraordinary rate due to the remarkable demand for its artificial intelligence (AI) chips.

For instance, in the first quarter of fiscal 2025, Nvidia's revenue skyrocketed 262% year over year to $26 billion. This impressive surge was fueled by a year-over-year increase of 427% in its data center revenue to $22.6 billion. In 2022, Nvidia predicted its revenue opportunity in the hyperscale data center and AI chip market at $300 billion.

The company generated $47.5 billion in data center revenue in the previous fiscal year. The segment's revenue in Q1 of fiscal 2025 demonstrates that it is on track to experience another significant increase in this sector.

Consequently, Nvidia is making significant progress on the $300 billion data center opportunity, and it is unlikely to be surprising to see it grab a substantial share of this market in the future. That's because Nvidia dominates the market for hyperscale and AI graphics cards with a share of more than 90%, which is why its data center revenue is anticipated to grow at an astonishing pace in the coming years.

Markets such as digital twins and automotive are other components of Nvidia's potential $1 trillion revenue opportunity. For instance, Nvidia sees a $300 billion revenue opportunity in automotive chips. The good news is that the company is gaining traction in automotive, and its revenue from this segment increased 17% year over year in the previous quarter to $329 million.

There is no doubt that the automotive business is currently a small segment of Nvidia's overall business, but a solid ecosystem of automotive customers and component suppliers could accelerate the company's growth in this sector.

Simultaneously, Nvidia's Omniverse software solutions are also gaining significant traction due to the increasing adoption of digital twins, driving a 45% year-over-year increase in the company's professional visualization-segment revenue last quarter to $427 million. Investors should not forget that Nvidia also has a substantial growth opportunity available in the gaming market where it stands to benefit from the growing adoption of AI-enabled personal computers (PCs).

In conclusion, it is unlikely to be surprising to see Nvidia becoming a much larger company in a few years due to the numerous catalysts it is currently sitting on and the dominant position it enjoys in key markets such as those for AI chips. The company concluded the previous fiscal year with $12.96 per share in earnings, and you can see in the following chart that its bottom line is poised to skyrocket over the next three years.

As such, there are numerous reasons for investors looking to buy a growth stock to consider adding Nvidia to their portfolios. And now that you've seen how attractively valued Nvidia is presently in light of the potential growth it is expected to deliver, buying it seems like a no-brainer as it could continue delivering healthy returns for an extended period.

Despite Nvidia's current price-to-earnings (P/E) ratio of 70 being high, its forward-earnings multiple of 46 indicates a significant revenue increase, suggesting that Nvidia might be more undervalued than perceived. Furthermore, with a PEG ratio of 0.09, Nvidia is deemed incredibly undervalued, making it an appealing investment opportunity for those seeking growth stocks.