All eyes were on the chipmaker’s guidance for signs about the strength of the AI market, and Nvidia didn’t disappoint. With the numbers now in, bulls are swiftly calculating the stock’s new price-to-earnings ratio, or how much investors are paying for future growth.

“Some investors have been scared to buy because they think the stock is too expensive, but that’s been a huge mistake,” said James Demmert, chief investment officer at Main Street Research. “Every time it reports, the P/E shrinks because the E ends up being so much stronger than people expect.”

Put another way, Nvidia’s earnings have been growing even faster than the stock. 

Nvidia has seen its valuation slide since the middle of 2023, even amid a record-breaking rally for the shares, because of its massive earnings growth. In the fiscal fourth quarter, the chipmaker reported a whopping 486% year-over-year growth in earnings per share excluding certain items, with the $5.16 figure handily beating analyst estimates of $4.60. Its forecast for first quarter revenue of about $24 billion was also a big beat.

The numbers mean Wall Street estimates are set to be revised higher, which will likely bring down the valuation once again if the share price doesn’t keep pace. The stock jumped 13% in US premarket trading.

While some investors have been concerned about a possible bubble forming around AI-related stocks, others noted that Nvidia is still less expensive than peers. The stock traded at about 30 times forward earnings as of Wednesday’s close, compared with rival Advanced Micro Devices Inc. at 43 times. The shares are also cheaper than those of Amazon.com Inc. and Microsoft Corp., while the Nasdaq 100 Index trades at a 25 times multiple.

“Nvidia continues to be one of the cheapest AI-oriented stocks even after its year-to-date run up,” said David Wagner, portfolio manager at Aptus Capital Advisors LLC.

Bullish comments from Nvidia Chief Executive Officer Jensen Huang are also likely to boost sentiment about the longer-term valuation. He said that AI has “hit the tipping point,” with demand surging worldwide across industries. 

“The longer the growth cycle, the more attractive the valuation will look for growth investors,” said Hendi Susanto, a portfolio manager at Gabelli Funds. “We want to see if Nvidia will continue to deliver this kind of strong growth beyond 2024, into 2025 and even 2026.”

To be sure, Nvidia’s valuation needs to bake in the idea that current exponential growth can’t last forever, according to Alec Young, chief investment strategist at Mapsignals. 

“The normal valuation reflects the fact that the market doesn’t think this kind of growth is sustainable,” he said. “Once you get this big, the market doesn’t expect you to keep growing and doubling your business every year.” 

But that doesn’t mean that there’s any lack of enthusiasm around the stock and its growth trajectory for the next few years, especially given its place in the larger market, according to Young. 

“AI is a huge opportunity globally, and Nvidia is the arms merchant,” he said.