Do you think Nvidia stock is expensive? This chart might change your mind.

Despite a recent decline, Nvidia (NVDA -0.21%) the stock has been in the doldrums, with a gain of more than 600% since the start of 2023. Its market capitalization has grown from $360 billion to $2.5 trillion during that time, the fastest rate of creation of value in stock market history.

But is it justified? Some Wall Street analysts believe Nvidia stock is overvalued, and they may be right in the short term based on the price-to-earnings (P/E) ratio. The P/E ratio is calculated by dividing a company’s stock price by its earnings per share (EPS) and is one of the most widely used valuation metrics among investors.

The Nasdaq-100 the index, which includes Nvidia and all of its big-tech peers, trades at a P/E ratio of 30.7. Nvidia stock trades at a P/E ratio of about 58, based on trailing 12-month EPS of $1.80, making it nearly twice as expensive as the index.

Based on these numbers, Nvidia stock is undeniably expensive. However, the company is growing so fast that the situation changes completely if you look just one year into the future. Wall Street expects Nvidia to generate $3.74 in EPS in fiscal 2026 (which begins on January 30, 2025), which means its stock is even cheaper than the Nasdaq-100 on a forward-looking basis:

Data by YCharts.

Nvidia’s data center chips are central to the development of artificial intelligence (AI), and while competition is emerging, the company has built a significant technological lead. Revenue from its data centers grew 427% in the most recent quarter, and demand isn’t expected to slow down anytime soon.

So for investors with a time horizon of at least a few years, Nvidia stock might actually be a bargain right now.