NVDA is undervalued relative to its growth; supply constraints and high demand support a bullish long-term thesis.

Nvidia stock just reported earnings and it's up over 8% on the day. Arguably, it was the most impressive quarter in the history of the stock market. Quarterly revenue is up 106% year over year.

They guided to $108 billion of revenue next quarter and guided to 70% revenue growth in the upcoming fiscal year.

The Nvidia CEO said that demand is actually much higher than that and they are supply constrained. And with this rapid growth, Nvidia is actually trading at the same P/E multiple as value stocks like Coca-Cola.

That's right, the most valuable company in the world, Nvidia, with a market cap of $5.49 trillion, it's a value stock.

But unless you're in the tech industry, the only narrative you hear about Nvidia is the idea of the AI bubble. That Nvidia is Cisco in 2000 and it's the dot-com bubble ready to pop.

You hear about Nvidia's growth being all circular financing or that the chips are going to be worthless in a few years. So today I'm going to address some of those bear narratives around Nvidia stock.

I'm going to dive into the latest earnings report to give you my full picture look at Nvidia stock.

Then I'm going to explain why me, someone who is a value and dividend growth focused investor, made Nvidia their largest overall position in 2026. That's right, after the stock has gone up 898% over the past 5 years, I decided to build a position in Nvidia for the first time this quarter.

I'll give my case for why I think Nvidia will be the first $10 trillion company and I'll explain the key difference between what's happening right now and the Cisco era dot-com bubble that Nvidia often gets compared to and the problems with the AI bubble narrative that is surrounding the stock.

So first before I get to the valuation around Nvidia stock and talking about the historic example with Cisco and dive into the whole AI bubble subject, let's focus in on Nvidia's latest quarter and what they just reported.

They had $2.22 of non-GAAP earnings per share, which beat the analyst consensus by 6.2% Over the trailing 12 months, adjusted earnings per share is $7.01, which is up 96% year-over-year.

GAAP earnings per share in the quarter came in at $2.46, which is up 127% year-over-year. And trailing 12 months GAAP earnings per share is $7.91, up 125% year-over-year. This puts Nvidia's trailing 12 months P/E ratio at 28.27.

Now you might say, I thought Nvidia was a bubble. Wouldn't they be trading at a very high multiple? A 28.27 trailing multiple is not that high for a high-growth company like Nvidia.

In fact, if we look at Coca-Cola as an example, they trade at a trailing P/E ratio of 27. And this is for a low-growth mature company. And when we go back and look at the historic example in the dot-com era in our comparison to Cisco, they were obviously trading at a much higher multiple than Nvidia is today.

And before I was preparing for this video, I went back and was looking at the numbers, they were growing far slower than Nvidia is today. Other highlights from the quarter, if we look at their revenue in the quarter, they had 96.22 billion dollars of revenue.

This was ahead of analyst expectations, and that's up 105% year-over-year.

So, over the trailing 12 months, Nvidia has now generated 302.97 billion dollars of revenue. That's up 83.38% year-over-year. And in the earnings call, the company gave guidance for what they're expecting in Q3.

They're expecting 108 billion dollars of revenue. That would be 12% sequential growth quarter-over-quarter.

And if you've been following Nvidia, you know that they tend to beat every single guidance they put out. And the other big number here is that they're expecting 70% revenue growth in fiscal 2028.

And the CEO, Jensen, said that demand is actually much higher than 70% and they are constrained purely by what they can actually produce. He emphasized multiple times on the call that their supply chain is the main bottleneck.

And following the latest earnings report, analysts have finally started raising the revenue targets for Nvidia stock. Going into the report, the consensus revenue estimate for fiscal year 2027 was like 346 billion dollars, and that has now been raised to 395 billion dollars.

And fiscal year 2028 currently sits at 570 billion dollars, which is below the guidance that Nvidia gave out. Now, in the latest quarter, Nvidia had very strong margins, 75% gross margins, 62% net margins.

However, they did guide that in Q3, margins are going to be going down, and that's because of rising memory costs.

As you saw, Micron, SK Hynix, Samsung, they all have surged their memory prices, and what used to be a low-price commodity is now actually having higher margins than Nvidia.

And memory is one of the components that goes into Nvidia's product. Nvidia announced that they will be doing a 15% price increase later this year, and that'll help pass some of that cost along to Nvidia's customers.

But overall, Nvidia is a crazy high-margin business, and it was funny to hear them on the call. They were basically apologizing that in fiscal 2028, they'll be in the 73% to 74% gross margin range.

And as an investor, one of the most important metrics I always look at is free cash flow. And Nvidia, it's a free cash flow machine, and that's because they have a fabless semiconductor model, where they get their chips manufactured by TSMC, and Nvidia is the chip designer.

They don't actually invest in building out the large fabs that produce the chips, and this gives them a very capex-light business model.

As you can see, over the trailing 12 months, they've generated 134 billion dollars of operating cash flow, up 74% year-over-year, and that turns into 127 billion dollars of free cash flow. That's up 76% year-over-year.

And this is all of the money left over after all expenses and capital investments. It can be used to pay out dividends to shareholders and buy back stock, or just build up a fortress of a balance sheet, make strategic acquisitions, like Nvidia has been very aggressive with doing.

And that's because they're generating a ton of cash and expected to continue generating more cash in the coming years. In fact, Nvidia has the second highest free cash flow in the entire stock market behind Apple and Nvidia's free cash flow is going to continue growing at a much higher rate than Apple's is.

So, they will soon be setting records in free cash flow generation.

So, the company which is known for paying a very low dividend and they weren't focused on increasing it really at all. They recently increased their dividend by 2,400% and that gives it a 0.44% dividend yield and that's still a very low payout ratio, too. It's incredibly sustainable.

Nvidia is also repurchasing shares $57.44 billion over the trailing 12 months. This is another way that they can return capital to shareholders Nvidia could be in a position where they're doing a similar thing, but Nvidia is actually being more active investing in growth opportunities and in other businesses, either through making acquisitions or partnerships, things like the Groq LPUs which they rolled into Vera Rubin.

They just acquired Hugging Face which is huge for open-source AI models and they're now investing in most of the major AI labs and some neo clouds as well. And basically, they're just trying to grow the entire AI economy and ecosystem.

So, if you look at Nvidia's free cash flow, it's around 42% of their revenue over the trailing 12 months and given that over the next two years, they're expected to basically generate $1 trillion of revenue, it'd be a safe assumption to say this company will be taking on around $400 billion of free cash flow over the next two years.

And I'm recording this video during market hours and now Nvidia stock is up 9.34%.

So, after they reported this latest earnings and the stock popped 9.2% purely based on the trailing 12 months earnings per share, the stock actually looks cheaper than it was prior to earnings and that's because of how strong the recent earnings report was.

So, using adjusted earnings per share trailing 12 months P ratio, it's 32.66, but this is actually historically low for Nvidia stock.

Over the past 5 years, the median multiple has been 53.72.

And if Nvidia stock were to get re-rated higher back up to that median multiple over the past 5 years, it would imply a fair value of $376.58, which is 64% upside from today's price.

But, that's just talking about the multiple. Nvidia's actual fair value is growing year after year after year because the company is growing at such a high rate. Their actual earnings and cash flow are growing.

Even over the past 10 years, the median adjusted earnings per share PE ratio has been 51.07, and the stock is currently trading well below that.

This is the exact opposite of what was happening in the dot-com bubble. In the dot-com bubble, companies like Cisco were trading at outlandish multiples, and you had companies without even having revenue that were trading at crazy valuations.

Nvidia's currently trading at cheaper PE ratio than they were in 2020, 2021, and 2022.

The real question with Nvidia stock is whether they're over-earning now, and whether there will be a potential earnings decline in the coming years. And right now, it doesn't seem like that's going to happen next year or the year after.

But, I'll be the first to tell you that it is unpredictable what's going to happen 3, 4, 5 years from now, and especially in 2035. If you're investing in Nvidia stock, the entire story is the data center segment and its growth.

It's 90% of their overall revenue, and it's the entire reason for Nvidia's growth over the past few years. So, I'll give my thoughts on the data center segment and its growth in the upcoming years for Nvidia.

But, I'll also outline my overall thesis, which I went over in last week's video, where I explained why Nvidia was now my largest position in 2026.

I'll explain the core idea of why I think growth is set to continue in the next few years despite the bears constantly talking about the AI bubble. I'll also explain my exact plan with Nvidia stock, how long I plan to hold it, and why I think it's set to be the first $10 trillion company.

But first, I wanted to address this dot-com era comparison to what's going on right now with Nvidia and AI. One of the big comps Nvidia always gets is Cisco, and that's because they were a big part of building out the internet infrastructure in the dot-com era.

But there actually are some really fundamental key differences in both of these eras and related to Cisco and Nvidia.

But one of the things you'll notice is that the growth compared to Nvidia today is much less. Nvidia has been growing reliably in the 70%s, and Nvidia is really only three to four years into it.

As I mentioned earlier, Nvidia's currently trading at a 28 trailing 12-months PE ratio. That's a huge difference from peak dot-com bubble. And their earnings per share is up 96% over the trailing 12 months.

And as of making this video right now, we're probably like three, three and a half years into the data center build out. So there are still many years left here. In my personal opinion, I think this is something that's going to last for a decade plus.

So I put together a little PowerPoint to like help give you some visuals here as I talk through some of the key differences between the Cisco dot-com bubble and Nvidia in the AI build out today.

Now first, let's talk why this is a good comparison. As I mentioned, the financial growth is pretty similar, and they're both infrastructure build-outs. Both of the companies they were selling picks and shovels.

Today, it's AI factories or GPUs. Back then, it was routers and switches.

If we compare to today, demand is also off the charts, but that ordering across multiple vendors, Cisco actually wasn't even fully aware that was happening, and it created this like phantom demand that they thought was going to last forever.

But as of right now, there's a compute shortage going on. Nvidia has more demand than they can fill, and they said on the call they're expecting that to last through at least fiscal 2028.

So Cisco is building ahead of demand, Nvidia is building behind it and trying to catch up and serve the demand that is currently needed, and that demand is growing exponentially.

So I would say what's happening right now with GPUs, in my analysis, that's not comparable to what was happening with dark fiber. You have the A100 series of GPUs, which were from 2020.

Those are still in use, and they went up in price in 2026. That's because there is this compute shortage going on.

And yes, in this slide, I want to address something that some of you smart people that are nitpicking it will actually will be able to point out. Not all of these data centers always have max utilization of all the GPUs.

You got Elon as an example at xAI, now owned by SpaceX, they had data center usage that was not utilized as much and he instead rented that compute to Anthropic at a very high price.

The fact that we're compute constrained right now, ironically that could actually end up stopping a potential compute glut. And this gets to my thesis with investing in Nvidia stock.

I personally think it's fairly obvious that AI demand is going to rapidly grow in the coming years.

And in this world where you think there's going to be exponential growth of AI usage and AI token generation, one of the safest bets you can make in that scenario is related to an Nvidia because they run the general purpose infrastructure.

All of the major closed AI models, whether it's OpenAI, Anthropic, or Grok, they all run on Nvidia infrastructure. So, for Nvidia to do well, you really just need token demand to increase.

And finally related to my short-term confidence in the next few years related to Nvidia stock, it has to do with the fact that the AI data center build-out all signs are pointing to that continuing over the next couple years.

This is something that people weren't even forecasting related to Nvidia a year ago. And Elon struck a deal that they're going to be exclusive to Nvidia. So, all that money SpaceX raised in their IPO, plus a ton of other debt that they're raising in different fundraising, a large chunk of that is just going to go straight to free cash flow for Nvidia.

But, if they're ever allowed to sell these chips back in China again, there would be another huge growth opportunity. Now, I'm not going to get into whether any of that's a good idea, but it would be good for Nvidia.

And again, they emphasized on the earnings call that they are gated by the supply of the chips they have. There is more demand than they can supply. Memory's basically price gouging them, which in the grand scheme of things, they're a component of the supply chain.

I guess it's fine. They need to be able to fund their investments to build out more infrastructure. And as long as they do that, that's fine.

So, Nvidia's entire business basically at this point, if you're an investor in the stock, it's all about the data center. And it's broken up into two sections.

Hyperscalers, this would be Amazon Web Services, Microsoft Azure, Google Cloud. They probably throw Meta and SpaceX AI in that as well. That was 48.7 billion dollars of revenue in the latest quarter.

This segment has been rapidly growing, actually faster than the hyperscalers. And in the latest quarter, it was 40.3 billion dollars of revenue. And this matters because it's a more diversified customer base.

They're also less technical and less likely to switch to alternatives.

Jensen was talking about this on his latest earnings call. They really like Nvidia because it's the full AI factory just as a system. They don't have to mix and match a bunch of different chips.

Nvidia just announced they're going to deliver 2 million additional GPUs to Amazon Web Services. And before I start to wrap up this video and go over my portfolio and plan with Nvidia stock, I wanted to go back to another point that I think I missed on this whole dark fiber comparison.

And it's related to how Jensen has been branding these as AI factories. And I think it's actually a pretty important point. Fiber is like a connectivity thing. It's not inherently productive itself.

Whereas this AI infrastructure, it generates tokens. It produces things that provide value. So it's general purpose infrastructure that inherently has value no matter who is running it.

But let's talk about my position in Nvidia. As I mentioned, I didn't own any going into 2026. I bought it over the past quarter. It's actually 100% of my Roth IRA.

And the reason why I bring this up is it was a core part of why I bought the stock. Like I mentioned, I think Nvidia is set to be the first $10 trillion company. But I am uncertain that there couldn't eventually be a compute glut.

However, I know me, I know I follow technology incredibly closely. I am way too deep into AI and all this stuff. I also follow all of the cloud companies. I know their cap ex spend.

I kind of already know it before the earnings reports come out just from following things. I'm going to know when growth is starting to slow down at Nvidia. So this is not a forever holding for me. This is more of a trade.

I opened this position at a $182 per share cost basis. It's already up 24% and my plan when I purchased this was I was going to hold for a year and a half to two years and basically reevaluate until then cuz I feel pretty confident in the demand signals in that time.

And the reason why I thought this Roth IRA part was so important and kind of incentivized me into getting into the stock is because if it does hit a $10 trillion market cap, I could sell it and have no capital gains and I can reallocate elsewhere.

And I thought in terms of a risk-adjusted sense compared to other options in the market, this was actually a pretty attractive option.

And I think those are going to be pretty good investments long-term. But where is all that money going? It's going to Nvidia. Nvidia is just printing free cash flow. So I now own the other half of that trade.

And the more I was researching Nvidia and I kind of thought the evaluation was pretty attractive, I even added to my dividend growth stock portfolio. And this one I might end up holding even longer term.

Of what I own in Nvidia, the Roth position is what I'd be more likely to sell.

And before I wrap up the video, I'll give you the latest analyst price targets, which just came out post earnings. So Nvidia is currently trading at $227.69. And basically all of the Wall Street price targets are well ahead of that.

This is a 12-month price target. And all of the ones that happened today, I'll read them in order. We have $320, 315, 420, 300, 400, 390, 315, 315, 300, 300, 515, 465, 300, 330. And these were all bullish actions or raise.

But that's my thoughts on why in 2026, I think Nvidia is actually kind of a value stock.