DBS sees Nvidia earnings growth supporting AI rally

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Nvidia valuation shows AI rally

Highlights

Nvidia trades at about 17 times forward earnings.
Earnings are projected to grow about 70% next year.
DBS sees AI valuations well below dot-com extremes.

Nvidia trades at about 17 times projected earnings for the next 12 months, while earnings are forecast to grow roughly 70% next year. DBS Group Chief Investment Officer Hou Wey Fook contrasted those figures with Cisco Systems, which reached a valuation of roughly 100 times earnings before the dot-com crash, Bloomberg reported.

Earnings separate Nvidia from dot-com valuations

The comparison addresses a question that has followed the rapid rise in AI-related stocks: whether their valuations have moved too far ahead of the businesses behind them.

DBS argues that Nvidia presents a different case because its valuation is accompanied by rapid earnings expansion. Demand for the company’s processors has grown alongside investment in data centers and the computing infrastructure required to train and operate increasingly large AI models.

Cisco offers a useful historical reference because it was among the defining technology companies of the late-1990s internet boom. Its valuation climbed to levels that required years of exceptional growth to justify. Nvidia’s current forward multiple is far below that benchmark, even as expectations for its profits remain high.

That does not mean AI stocks carry little risk. Forecast earnings can change, while semiconductor companies remain exposed to shifts in capital spending, competition, and demand from a relatively concentrated group of large technology customers.

DBS pairs AI exposure with defensive assets

Rather than relying exclusively on technology stocks, Hou favors a portfolio built around assets with different risk characteristics. On the growth side, that includes companies positioned to benefit from continued spending on AI and semiconductors.

Investment-grade fixed income provides a more stable source of income, while gold and hedge funds can serve as diversifiers when equity markets become volatile. The approach reflects a distinction between remaining exposed to AI growth and assuming that technology stocks will rise without interruption.

Profits become the test for the AI trade

The debate around an AI bubble increasingly comes down to whether earnings can keep pace with expectations. Nvidia’s relatively moderate forward multiple offers support for the argument that its share price is tied to substantial profit growth rather than valuation expansion alone.

The larger test will be whether demand for AI computing remains strong enough to deliver the earnings already built into forecasts. If profit growth slows materially, valuations could become harder to defend even without reaching the extremes associated with the dot-com era.

Earlier, we reported that Nvidia expands its share buyback plan as a $150 billion authorization boosts capital return.

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