August 26 is shaping up to be a significant day for the stock market, primarily due to the much-anticipated earnings report from Nvidia (NVDA). This earnings season, we’ve seen quite a bit of volatility in stock prices influenced by various news reports, and I suspect Nvidia will also experience that. However, based on historical patterns, I feel optimistic that we’ve got some positive movements ahead.
But why do some investors feel that Nvidia’s Q2 report might lead to a stock price drop? One way to gauge this is by examining the stock’s performance during this period in previous years.
Nvidia appears undervalued compared to its usual trading price
Nvidia is quite a different entity today than it was in the past, making data from five to ten years ago less relevant. Instead, I think investors would be better off looking at its stock price performance around this time in 2024 and 2025, as those years provide a more accurate reference point.
Before the second-quarter results landed in August 2024, stock evaluations focused heavily on anticipated future earnings.
The stock price dropped post-earnings release back then, mainly because it was valued quite highly, with a forward P/E ratio exceeding 40. Nonetheless, the stock managed to recover from that dip fairly quickly.
Similarly, there was a decline in 2025 after the second-quarter results, but it also rebounded significantly.
By August 2025, Nvidia’s stock was trading almost at the same valuation level as in August 2024, where the forward P/E ratio had climbed to nearly 40 times. Since that time, it has decreased to around 35 times.
As of now, Nvidia is nowhere near those high ratios.
Currently, Nvidia is trading at a forward P/E ratio of 25, which seems quite reasonable as it heads into its next earnings report. Even if this valuation increases to 30 times expected earnings, it would still represent a worthwhile price for the stock, suggesting a potential short-term return of about 20%. Compared to its past trading history, Nvidia’s current stock price doesn’t seem too high, indicating strong potential for profitability.
Given all this, I believe this is a good time for investors to consider purchasing Nvidia stocks, especially since the upcoming Q2 report could trigger a significant year-end stock rally.
Even if there’s a temporary decline in the stock price, I remain convinced that Nvidia’s outlook is robust. With its leading position in AI computing units and ongoing advancements in AI expected to persist for years, now could be an opportune moment to invest.
