Middle East conflict adds to AI panic, NVIDIA's P/E ratio drops to a seven-year low!

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（Source: NetEase Technology）

Global markets have been pressured by the dual drag of escalating Middle East conflict and growing concerns about the AI outlook. The valuation of Nvidia—the company with the highest market cap globally—has already fallen to levels seen before the AI boom sparked by ChatGPT. This could both signal a rare buying opportunity and reflect a deep shake in the market’s underlying AI investment logic.

Since the stock price closed at its historical high in October of last year, Nvidia has cumulatively fallen by nearly 20%, with more than $800 billion in market value evaporated. It is currently about $4 trillion. In the first quarter, it is expected to record a decline of about 10%. Its 12-month forward price-to-earnings (P/E) ratio has dropped to roughly 19.6x, the lowest level since early 2019.

What stands out is that this valuation is even below the S&P 500’s overall P/E ratio of about 20x. The market typically assigns a higher valuation premium to high-growth companies. Meanwhile, Nvidia’s expected earnings growth rate is as high as more than 70%, far above the S&P 500 constituents’ average level of about 19%. This “inversion” phenomenon is rare.

Double negative factors crush valuation

Nvidia’s sharp contraction in valuation stems from two overlapping main lines of negative factors.

First, geopolitical risk has dominated recent macro sentiment. Military action by the U.S. and its allies against Iran has led the market to worry about oil prices staying at high levels for an extended period. Investors are concerned that inflation could return, which would then force central banks in various countries to raise interest rates again. This expectation weighs on overall risk assets, and Nvidia is also pulled into the broad market selloff, unable to escape.

Second, doubts about whether AI infrastructure investment can translate into returns continue to build. Nvidia’s core customers—including Microsoft, Alphabet, and Amazon—have made huge spending on AI infrastructure. The market believes the monetization cycle will be longer than previously expected. There is still no clear timeline for when the related returns will be realized, which has left investors’ confidence under pressure.

Risk of disruption makes the market cautious

Beyond macro concerns, technological iteration risk is becoming another hidden threat suppressing Nvidia’s valuation. Recently, stock prices at software companies have generally pulled back. The market worries that the rapid evolution of AI technology will intensify industry competition and erode profit margins. This logic also applies to the hardware space.

Triple D Trading’s proprietary trader, Dennis Dick, said:

It is worth noting that since the launch of ChatGPT, Nvidia’s stock price has risen cumulatively by more than 1,000%. Before that, its core business had long been focused on the market for gaming graphics cards, and the shift to a leadership position in AI chips has only happened in recent years. This history itself also confirms how quickly the industry landscape can be reshaped.

Financial fundamentals remain solid

Despite valuation pressure, Nvidia’s fundamentals have not deteriorated materially. According to Reuters, the company has recorded rising gross margin for several consecutive quarters; it is now at 75%. At the same time, analysts continue to raise their expectations for its future earnings growth.

Based on LSEG data, analysts’ average earnings growth forecast for Nvidia’s current fiscal year exceeds 70%, far above the S&P 500 constituents’ overall expected growth rate of about 19% for 2026. The downside in valuation is mainly driven by the “gap between scissors”—the combined effect of the stock price decline and analysts raising their forecasts.

Looking at it laterally, Microsoft’s P/E ratio has fallen from roughly 35x in August last year to about 20x currently, while Alphabet has also dropped from nearly 30x in January to about 24x. This indicates that the valuation reset for this round of the AI sector has broad-based characteristics.

Buy the dip? Institutions still hold a constructive view

Although market sentiment has become more cautious, some institutions still have a constructive view of Nvidia. B. Riley Wealth’s chief market strategist Art Hogan said that his firm still recommends Nvidia to clients.

“Trading at a P/E ratio below the S&P 500, I think this is an easy decision to make,” Hogan said.

At today’s valuation level below the market’s average, the question of whether it is a rare discount buying window or a true reflection of the market’s reservations about its long-term competitive position remains undecided—yet the answer may depend largely on how the AI technology landscape evolves next.

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