A while ago, Nvidia (NASDAQ:NVDA) reported a quarter in which revenue more than doubled. Yet the stock’s valuation sits far below where it has spent the past five years. That’s an odd pairing, and it’s the reason the shares deserve a second look. Nvidia designs the processors and networking gear that fill the data centers where AI models are trained and run. Its customers include cloud providers, AI labs, and governments, and most of its sales come from that data center business. So is the lower multiple a bargain, or a hint that the best margins are already in the numbers? The answer depends on whether a new product cycle can sustain profitability.
A 75% Gross Margin on $89 Billion of Data Center Sales
Nvidia’s edge isn’t a single chip. It sells whole systems: CPUs, GPUs, and the networking that ties thousands of them together. In fiscal Q2 2027, Data Center revenue reached $89.0 billion, up 117% from a year earlier. Gross margin held at 75.0% on both a GAAP and non-GAAP basis, up about 2.5 percentage points year over year on the non-GAAP measure.
That pairing is the proof. Buyers with real alternatives push on price, yet Nvidia kept more of each sales dollar while selling far more of them. CEO Jensen Huang said demand is still accelerating, with several frontier AI labs now building in parallel rather than one lab driving the buildout, as was the case a year ago. A rival chipmaker is chasing the same data center dollars from a different angle. See which one.
Vera Rubin is in Production, and the Next Guide is Bigger
Management guided fiscal Q3 revenue to $108.0 billion, plus or minus 2%, up from the $96.2 billion just reported. Vera Rubin, the next-generation platform, is in full production, with racks running at partners including CoreWeave, Google Cloud, Microsoft Azure, Oracle Cloud Infrastructure, and Nebius. Major cloud buyers moving to the new generation is what suggests the moat is widening rather than merely holding.
Nvidia is also helping customers pay for the buildout. It announced partnerships with Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs, and KKR on financing platforms meant to mobilize over $500 billion of outside capital, subject to definitive agreements. Shareholders got attention, too. Nvidia returned about $26.0 billion through buybacks and dividends in the quarter, backed by a massive remaining share repurchase authorization of nearly $99 billion.
Why Would Margins Slip When Demand is this Strong?
Here’s the strongest pushback. Nvidia guided fiscal Q3 gross margin to 74.0%, plus or minus 50 basis points, a modest step down from the 75.0% it just delivered. The outlook also assumes no data center compute revenue from China. Durability is the deeper worry. If AI spending pauses, or inflation and geopolitical concerns keep weighing on the market, growth could cool just as the new platform ramps.
That risk is real, but so far it’s narrow. The guide still points to higher revenue, and any China sales would land on top of the outlook rather than inside it. Margin is still the number to watch. Looking beyond the chip designers? Here’s a list of AI stocks to buy before they explode.
Priced Near the Sector, Far Below its Own History
On forward earnings, Nvidia trades at 25.67 times, meaning investors pay about $25.67 for every $1 of expected earnings. The sector’s multiple is 23.77, and Nvidia’s own five-year average is 42.20. So the stock sits only slightly above its peers and well under what the market paid for it through much of the AI boom. Growth is what makes that gap interesting. Analysts expect earnings per share to grow 69.66% in 2027, a pace that, if it arrives, would pull the multiple on today’s price down quickly.
This analysis leans on non-GAAP earnings. GAAP EPS of $2.46 in fiscal Q2 topped the non-GAAP $2.22 because it included gains on equity securities, which management excludes from the adjusted figure. Since the start of fiscal 2027, Nvidia’s non-GAAP results also count stock-based compensation, making that measure a tougher yardstick than before.
The catch is that the growth forecast leans on margins and supply holding up. If either slips, a modest multiple would be resting on shakier earnings. Sentiment supports the setup. Hedge fund interest ticked up, with 285 funds holding the stock in the most recent quarter, up from 275 in the prior one. Short interest is 1.27% of the float, which points to relatively limited bearish positioning.
A Real Discount, as Long as Margins Hold
The evidence points to a discount that looks genuine rather than a warning sign. At 25.67 times expected earnings, against a five-year average of 42.20, investors are paying far less for a business that more than doubled revenue and still guided higher. That setup suits investors who can live with swings in AI spending and care more about earnings growth than a smooth ride. A gross margin that falls below the guided 74.0% range, or a quarter where revenue lands under the low end of the $108.0 billion guide, would change the picture. Either would suggest the earnings behind the multiple are softer than hoped.
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