Nvidia (NVDA 1. 81%) remains one of the best artificial intelligence (AI) stocks on the market. But with the chipmaker now trading at a price-to-sales multiple of 26.
4, many investors may wonder if s have gotten too expensive to buy. Don't be fooled: Nvidia stock is still reasonably priced.
Nvidia stock isn't as expensive as it seems Nvidia designs graphics cessing units (GPUs) that vide the cessing power required to support modern AI and machine-learning software.
The company's gross margins are around 60% -- nearly twice those of competitors Intel -- a reflection of how superior its cutting-edge chips are compared to the offerings of rivals.
Nvidia can simply charge more for its ducts due largely to their performance superiority, as well as the value of its widely used software platform, which makes it easier for developers to gram chips for specific tasks.
Source: Getty Images. Nvidia's hardware is essentially powering the AI revolution: Most analysts believe it has an 85% to 90% market in AI accelerator chips right now.
Because AI infrastructure spending is expected to grow by more than 30% annually through 2033, Nvidia has the potential to grow its sales base aggressively over at least the next decade, and ly beyond.
Due to investors' optimism all of this, its s trade at a pricey 26. 4 times sales.
But when you measure the stock against the company's fits and bottom-line outlook, the valuation picture imves considerably. Data by YCharts. Nvidia s currently trade at roughly 51 times earnings.
That's still quite a premium. But because earnings are growing so fast, s trade at just 36. 9 times next year's earnings.
If it can maintain its high gross margins, the stock's valuation could continue to imve dramatically year after year due to its rapid sales growth.
Compared to a competitor Intel, which lost money in each of the last three quarters, Nvidia's valuation looks quite reasonable.
To be sure, s aren't cheap, and the stock just hit the $4 trillion market cap threshold. But for patient investors willing to pay an up-front premium, they could still ve fitable.
Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intel and Nvidia.
The Motley Fool recommends the ing options: short August 2025 $24 calls on Intel. The Motley Fool has a disclosure policy.