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

Nvidia reported Q2 revenue of $96B, up 106% year over year, with data-center revenue rising 117% to $89B (about 93% of total sales). The article highlights valuation support with forward P/E at 24 vs a five-year average of 35 and price-to-cash flow at 29 vs a five-year average of 51, alongside aggressive capital returns (buyback of $26B in the last quarter and a 25x dividend increase). Overall, the news frames Nvidia’s AI-driven growth as strong enough to offset a high price-to-sales ratio of 17.

Analysis

The important signal is not the headline growth rate; it is that AI infrastructure is still being priced as a scarce utility, not a normal semiconductor cycle. That keeps NVDA as the cleanest expression of the trade, while the second-order beneficiaries remain the foundry/packaging chain and networking/optics suppliers (TSM, ASML, AMAT, KLAC, MRVL, AVGO). The flip side is that the more customers internalize workloads into custom silicon, the more NVDA’s mix can shift away from the highest-margin training systems toward a broader, less exclusive inference market.

Near term, the stock is likely to trade on whether hyperscaler capex and gross-margin guidance keep validating that demand is still outrunning supply. Over the next 1-3 months, any evidence of procurement digestion, inventory normalization, or an export-control headline would hit multiple first, even if revenue stays strong. Over 6-18 months, the bigger risk is not demand disappearing; it is growth normalizing faster than the market expects, which would make even a lower P/E vulnerable to compression.

The contrarian view is that buybacks/dividends are being read as undervaluation evidence when they may simply reflect limited incremental capital intensity and a cash-hoarding bias while management waits for the next generation of platforms. If enterprise customers or cloud providers shift a meaningful share of spend to in-house ASICs or lower-cost alternatives, NVDA can still grow, but the market will likely pay a lower multiple for each incremental dollar of revenue. Falsifiers: a guide below roughly 50-60% YoY growth, sequential data-center margin compression, or commentary that AI capex is broadening slower than consensus.

Net: the move is not obviously overdone yet, but the easy-money phase is probably over; the stock now needs execution continuity, not just AI narrative support.

Key Decisions for Investors

• Stay long NVDA, but add on 5-8% post-earnings pullbacks rather than chase strength; 6-18 month thesis remains intact unless revenue growth falls below ~50% YoY or data-center margins compress sequentially.
• For a cleaner relative-value expression over the next 1-3 months, go long NVDA / short SMH or SOXX to isolate execution and AI share gain versus broader semiconductor beta; exit if the next guide signals capex digestion.
• Use a 3-6 month call spread on NVDA instead of outright stock if positioning is already crowded; this captures upside from another strong guide while limiting multiple-compression risk on a merely in-line print.
• Watch TSM and AMAT as second-order beneficiaries of sustained AI capex; if NVDA remains strong but these names lag, it likely signals the market is pricing concentration risk rather than broadening demand.
• If holding a large NVDA position into earnings, hedge with short-dated puts or a put spread because the near-term downside is driven more by valuation reset than by fundamental collapse.