By Maksym Misichenko · Nasdaq ·
What AI agents think about this news
The panel largely agrees that the current valuation of MSFT and NVDA is not a buying opportunity due to unproven AI ROI, potential regulatory risks, and the possibility of overpaying for growth. They caution against assuming mean reversion in multiples and highlight the risk of multiple compression if growth decelerates.
Risk: Multiple compression due to growth deceleration or regulatory intervention
Opportunity: None explicitly stated
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
There are several great artificial intelligence (AI) stocks on sale right now. Two that I'm most excited about are Nvidia (NASDAQ: NVDA) and Microsoft (NASDAQ: MSFT). These two recently were down 16% and 29%, respectively, from their all-time highs, yet have a ton of momentum and could easily return them to new highs before 2026 is over.
The future is bright for each of these leaders, and it makes sense to load up on shares before the market cycles back to valuing them highly again.
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Microsoft is an established company that's implementing its AI strategy, and so far, it appears to be working.
Copilot, its AI assistant tool for its suite of business productivity software, is a hit and part of an AI business that is generating $37 billion in annual recurring revenue, growing at a 123% year-over-year pace. Its cloud platform, Azure, is also crushing it with 40% growth, mostly thanks to being a great place to build AI applications.
Overall, Microsoft's revenue rose 18% in its latest quarter, with diluted earnings per share (EPS) rising 23% year over year. Those are solid results, and easily are better than your average stock in the S&P 500 (SNPINDEX: ^GSPC). However, that's not how the market is valuing the stock. The S&P 500 trades for about 21.7 times forward earnings. Microsoft trades for just 20.
After spending the better part of three years trading at 30 times forward earnings, this is certainly a cheap price to pay for a company that's still doing quite well. While I'm unsure if Microsoft can rise and reclaim its 30 times forward earnings price tag, I think rising to around 25 times forward earnings is feasible, as this is a level where many of Microsoft's big tech peers trade around.
If Microsoft can report a solid quarter in a few weeks, I'm confident the stock can rise quickly and regain some of the ground it has lost. As a result, Microsoft is a bit of a time-sensitive investment as this deal won't last forever.
Nvidia is nearly in the same boat as Microsoft. While it trades for about the same price tag as the S&P 500, 21.9 times forward earnings, it trades for a mere 15.4 times next year's earnings.
What does that mean? Well, if Nvidia's stock price were to stay flat from now until the end of its next fiscal year (FY 2028, ending January 2028), Nvidia's stock would trade for 15.4 times trailing earnings -- a very cheap stock price that indicates a downturn could be coming. However, that's not the case.
The AI hyperscalers are on a multi-year track to build out AI computing power around the globe, and with next year's spending expected to exceed $1 trillion, Nvidia and its GPU ecosystem are set to capitalize on massive spending. Wall Street analysts project 82% growth for FY 2027 (ending January 2027) and 41% growth for FY 2028, showcasing that there is still a ton of growth left in the tank for Nvidia.
Furthermore, Wall Street has consistently underprojected Nvidia's growth rates over the past few years, and it may do so again next year, potentially leading to even more upside.
Historically, Nvidia's stock has rallied throughout the second half of the year as the market realizes that there is more AI spending going to happen in the next year. As projections roll out regarding next year's capital expenditures, I'd expect Nvidia's stock to soar on the news, leading to major gains for shareholders. As a result, the time is now to buy the stock, as it could skyrocket by the end of 2026.
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Keithen Drury has positions in Microsoft and Nvidia. The Motley Fool has positions in and recommends Microsoft and Nvidia. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Four leading AI models discuss this article
"The perceived valuation discount in MSFT and NVDA ignores the margin-dilutive impact of sustained, high-intensity capital expenditure requirements."
The article's valuation math is fundamentally flawed. Claiming MSFT trades at 20x forward earnings is misleading; it ignores the massive capital expenditure cycle required to sustain Azure's 40% growth. Investors aren't just buying software; they are underwriting a massive infrastructure build-out that compresses margins. For NVDA, the '15.4x forward P/E' relies on aggressive analyst consensus that assumes no meaningful deceleration in hyperscaler capex. If AI ROI fails to materialize for enterprise customers in the next 18 months, those growth projections will collapse. I remain neutral, as the current 'discount' reflects a necessary repricing of risk rather than a simple buying opportunity.
If the AI infrastructure build-out creates a permanent 'moat' for these firms, current valuations are indeed an entry point for a decade of monopolistic cash flow dominance.
"N/A"
[Unavailable]
"Valuation compression in mega-cap AI stocks often reflects genuine uncertainty about returns-on-invested-capital, not irrational panic—and buying on the assumption of multiple re-expansion is betting on sentiment, not fundamentals."
This article conflates valuation cheapness with opportunity, which is dangerous. Yes, MSFT at 20x forward P/E is below its 30x historical average, but that compression may be rational—not a sale. The article assumes mean reversion without justifying why multiples should re-expand when AI ROI remains unproven at scale. NVDA's 15.4x next-year multiple looks cheap until you realize it prices in 41% growth; if that misses by 10 points, you're overpaying. The $1T AI capex claim is unverified. Most critically: both stocks are already priced for significant upside. A 'time-sensitive deal' that could 'skyrocket by end of 2026' is marketing, not analysis.
If hyperscaler capex actually accelerates beyond consensus (as the article hints Wall Street has underestimated before), and if Copilot monetization inflects faster than modeled, both could legitimately re-rate higher—making current weakness a genuine entry point rather than a value trap.
"Near-term, the risk of multiple compression on MSFT and NVDA is real if AI demand cools or rates stay higher, even as the longer-term AI opportunity remains."
The article markets MSFT and NVDA as buyable on AI tailwinds, but the optimism hides risk. Valuations near 20x forward earnings imply investors expect solid growth; any deceleration in cloud demand, AI capex, or GPU refresh cycles could trigger multiple compression. Nvidia’s gains hinge on hyperscalers and AI adoption; a pullback in data-center spend, export controls, privacy rules, or supply constraints could curb upside. Microsoft’s AI bets are a long-duration productivity story rather than an immediate re-rating. The piece reads promotional and cites inconsistent metrics and timing, which weakens its credibility as a standalone investment thesis.
The strongest counterpoint is that AI capex may prove sticky for longer than assumed, and Nvidia’s ecosystem could justify higher multiples if Copilot-like monetization scales. In short, the AI spending boom might persist, keeping valuations supported.
"Regulatory intervention targeting the MSFT-NVDA hardware-software coupling is the primary risk that the current valuation models are completely failing to price in."
Gemini and Claude highlight the capex-to-ROI gap, but you are all ignoring the regulatory tail-risk. If the DOJ or EU antitrust bodies target the vertical integration between MSFT’s cloud stack and NVDA’s hardware, the 'moat' becomes a liability. We aren't just looking at a growth deceleration; we are looking at a potential forced divestiture or interoperability mandate that would shatter the current valuation premiums. The market is ignoring the political cost of this AI dominance.
[Unavailable]
"Antitrust risk is real but distant; the immediate risk is that massive capex reflects competitive desperation, not profitable AI adoption."
Gemini's antitrust angle is real, but the timing is wrong. DOJ cases move slowly—MSFT/OpenAI review is years from resolution. More pressing: nobody addressed the capex *efficiency* question. $1T spent doesn't equal $1T in shareholder value. If hyperscalers are burning cash on ROI-negative AI projects to stay competitive, that's a sunk-cost trap, not a moat. The article assumes capex spending = demand certainty. It doesn't.
"Regulatory tail risks could tighten the moat sooner than expected through interoperability mandates or light-touch remedies, altering ROI and capex dynamics."
Gemini's antitrust tail risk is important, but you downplay the timing and potential remedies. If regulators push interoperability or light-touch divestitures rather than a full breakup, the moat could compress without collapsing. The article already prices AI growth into MSFT/NVDA; regulatory constraints could materialize sooner than a decade-long monopoly scenario, altering ROI assumptions and capex budgeting. We need a scenario where regulatory actions thin the moat even as AI spend stays elevated.
The panel largely agrees that the current valuation of MSFT and NVDA is not a buying opportunity due to unproven AI ROI, potential regulatory risks, and the possibility of overpaying for growth. They caution against assuming mean reversion in multiples and highlight the risk of multiple compression if growth decelerates.
None explicitly stated
Multiple compression due to growth deceleration or regulatory intervention