Why I'm Still Holding Nvidia (NVDA) Stock Despite Its Sky-High P/E Ratio

Nvidia’s Q2 revenue surged 106% YoY to $96B, with data-center revenue up 117% YoY to $89B, reinforcing strong demand for AI compute. The article also highlights a $12.9B acquisition of Hugging Face and $26B in Q2 share buybacks, alongside a 25x increase in dividends (yield ~0.49%). Despite a steep 17x price-to-sales, the forward P/E of ~24 remains below the five-year average (35), supporting the view that valuation is justified by growth.

Analysis

The real market mechanism here is not “NVDA is cheap”; it is that AI capex is still early enough that earnings power is compounding faster than the market can de-rate it. That keeps NVDA the cleanest expression of the buildout, but the higher-probability second-order winners are the bottleneck suppliers and integration layers that monetize every incremental rack rollout: TSM for advanced packaging/utilization, AVGO for networking/custom silicon, and the equipment stack (AMAT, LRCX, KLAC) if hyperscaler budgets keep expanding.

The key risk is time-horizon mismatch. In the next few days, the stock can keep working on momentum and buyback support, but over 1-3 months the trade depends on whether hyperscalers and model labs reaffirm capex growth and whether Blackwell/next-gen ramps convert into margin, not just revenue. Over 6-18 months, the bear case is that custom silicon, model efficiency, and financing-heavy customers pressure unit demand growth faster than headline revenue suggests.

Contrarianly, the consensus may be underestimating breadth of demand while overestimating valuation immunity. A 100%+ revenue growth rate can coexist with a future multiple reset if growth normalizes sharply; at this scale, the stock only needs one or two quarters of deceleration or margin giveback to see a sharp de-rating. The clean falsifier is not the P/S ratio, but any evidence that backlog conversion, gross margin, or data-center growth meaningfully slows versus current expectations.

Key Decisions for Investors

• Maintain or add to NVDA only on weakness, not strength: prefer a 3-6 month entry after a 5-8% pullback or post-earnings consolidation. Risk/reward is best if the market is still underpricing capex durability; if data-center growth decelerates or gross margin compresses, trim immediately.
• Pair trade: long NVDA / short AMD for the next 1-3 months if you want direct share-gain exposure. AMD needs sustained product execution and customer wins to close the gap; the pair is invalidated if AMD guides materially ahead on AI accelerator share.
• Overweight NVDA-adjacent suppliers over the headline name if you want less multiple risk: long TSM or AVGO on 6-12 month horizons. These names can benefit from the same capex cycle with less vulnerability to a single-quarter sentiment reset in NVDA.
• Use SOXX/SMH as a hedging vehicle rather than a thesis vehicle: if NVDA is already a large position, hedge event risk with short-dated SMH puts into earnings or major product-cycle updates. The hedge works unless the whole AI complex reaccelerates together.
• Watch for a catalyst checklist before adding aggressively: next hyperscaler capex updates, NVDA gross margin trend, and evidence that financing is converting smaller customers into real demand. If any one of those weakens, the 'always own NVDA' thesis becomes a momentum trade, not a fundamental one.