Middle East conflict combined with AI panic causes Nvidia's P/E ratio to fall to its lowest level in seven years!

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The global market is under dual pressure from the escalation of conflict in the Middle East and concerns about the outlook for AI, with the valuation of Nvidia, the world's most valuable company, falling to levels seen before the AI boom triggered by ChatGPT. This may suggest a rare buying opportunity, but also reflects deep doubts in the market about the logic of investing in AI.

Nvidia’s stock price has fallen nearly 20% from its historic closing high last October, with over $800 billion in market value wiped out, currently around $4 trillion. The first quarter is expected to record about a 10% decline. Its 12-month forward price-earnings ratio has dropped to about 19.6 times, the lowest since early 2019.

Notably, this valuation is now even lower than the overall S&P 500 average PE ratio of about 20 times. The market usually gives high-growth companies a premium, while Nvidia’s expected earnings growth exceeds 70%, far surpassing the S&P 500 constituent average of about 19%, making this inverted phenomenon rare.

Dual Negative Factors Pressure Valuation

The sharp shrinkage in Nvidia’s valuation is due to two overlapping negative factors.

Firstly, geopolitical risks have dominated recent macro sentiment. US and Israel's military actions against Iran have sparked concerns about persistently high oil prices, with investors worried inflation may return, forcing central banks to raise interest rates again. This expectation has weighed on overall risk assets, and Nvidia has been caught up in the broad market selloff.

Secondly, concerns about whether AI infrastructure investments can be monetized are intensifying. Huge expenditures by Nvidia’s core customers—Microsoft, Alphabet, Amazon—on AI infrastructure are believed by the market to have a longer monetization cycle than previously expected, and there is no clear timetable for relevant returns, putting investor confidence under pressure.

Disruption Risks Make Markets Wary

Beyond macro concerns, the risk of technological iteration is becoming another hidden worry suppressing Nvidia’s valuation. Recently, software companies’ stock prices have generally pulled back, as the market fears that rapid progress in AI will intensify industry competition and erode profit margins. The same logic applies to hardware.

Dennis Dick, proprietary trader at Triple D Trading, said:

"All technologies, no matter what they are—including Nvidia—have a chance to be disrupted, and that’s the risk at present. Right now everything runs on Nvidia chips, but it doesn’t mean it will still be like that in two or three years. Everything changes too fast; I think that’s the core concern of the whole market."

It’s worth noting that since the advent of ChatGPT, Nvidia’s share price has risen over 1,000%. Before that, its main business was focused on the gaming graphics card market, and the transition to AI chip dominance is a recent phenomenon. This history itself illustrates the possibility of rapid industry reshaping.

Financial Fundamentals Remain Robust

Despite pressure on valuation, Nvidia’s fundamentals have not seen actual deterioration. According to Reuters, the company has recorded successive quarters of rising gross margins, now reaching 75%, and analysts continue to raise future earnings forecasts.

According to LSEG data, analysts’ average earnings growth forecast for Nvidia’s current fiscal year exceeds 70%, far higher than the S&P 500 constituents’ overall expected growth of about 19% for 2026. The decline in valuation mainly results from the “scissors difference” between falling stock price and rising analyst forecasts.

Looking horizontally, Microsoft’s PE ratio has dropped from about 35 times last August to about 20 times currently, and Alphabet has fallen from almost 30 times in January to about 24 times, showing that this round of AI sector valuation reset is widespread.

Buy the Dip? Institutions Remain Positive

Despite the cautious market mood, some institutions remain constructive on Nvidia. Art Hogan, Chief Market Strategist at B. Riley Wealth, said his firm continues to recommend Nvidia to clients.

"Trading at a PE ratio below the S&P 500, I think this is an easy decision," Hogan said.

The current valuation lower than the broader market average—whether it is a rare discounted buying window or a true reflection of market reservations about its long-term competitive position—remains undecided. The answer may largely depend on the next evolution of the AI technology landscape.

Risk Disclosure and DisclaimerThe market is risky, investment requires caution. This article does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation, or needs of individual users. Users should determine whether any opinions, views, or conclusions in this article fit their specific circumstances. Investment is at your own responsibility. ```