Lee Stays Bullish on Undervalued Nvidia Amid AI Growth

Fundstrat's Tom Lee remains optimistic about Nvidia NVDA despite its recent post-earnings surge, arguing that the company is still undervalued due to rising profits and revenue expectations outpacing its valuation multiple. This creates an unusual setup where a megacap stock with triple-digit growth has a compressing earnings multiple.

Nvidia's second-quarter results showed a 106% revenue increase to $96.2 billion, while adjusted earnings per share climbed 111% to $2.22. Data Center revenue reached $89 billion, up 117%, highlighting the ongoing strength of AI infrastructure spending. The company guided for roughly $108 billion in third-quarter revenue.

Shares jumped 8.7% after the results, easing fears that AI spending was peaking. Fundstrat called Nvidia's over 100% revenue growth 'astounding,' with Lee stating that Nvidia will support a rally in AI complex. The bigger valuation catalyst may be further out, as Nvidia expects revenue to grow around 70% in fiscal 2028, surpassing Wall Street models.

Investors should monitor Nvidia's conversion of extraordinary demand into earnings, which is essential for its valuation not expanding. Key metrics include fiscal 2028 revenue growth, Data Center sales, and gross margins. Rising memory costs may pressure Nvidia's 75% second-quarter margin, while supply constraints could limit the company's ability to fulfill demand.