When NVIDIA announced a record share repurchase plan on Monday, based on one key indicator, the stock price of this chip manufacturer was at its cheapest level in a decade. CEO Jensen Huang believes that this is a worthwhile deal.

Based on the projected price-to-earnings ratio for fiscal year 2028, NVIDIA's valuation is only 14.5 times. This fiscal year begins this February, a level lower than all major tech peers except Micron. Over the past five years, NVIDIA's current price-to-earnings ratio has averaged 62.9 times, now exceeding half that.

The world's most valuable company currently has a valuation of over $5.5 trillion. The narrowing of its valuation multiple reflects the fact that this chip company, which provides computing power for the artificial intelligence boom, has seen extremely rapid profit growth over the long term. NVIDIA's stock price has risen by 23% this year, outperforming the Nasdaq, but it still hasn't kept up with the expected profit growth.

Analysts on average expect NVIDIA's net profit for the fiscal year 2028 to approach $385 billion, a 60% increase from the previous year, and to more than quintuple within three years.

Therefore, NVIDIA stated on Monday that it has been authorized to add an additional $150 billion to its stock repurchase program. This is on top of the $80 billion repurchase program announced in May; at that time, the company also increased its quarterly cash dividend from 1 cent per share to 25 cents per share.

Post Oak Group Director General Karan Ramchandani stated in an interview that the latest repurchase is a "very clear signal" indicating that management believes the company's stock is undervalued.

Ramchandani said, "If you look at the price-earnings ratio, the growth rate of earnings is faster than that of stock prices. This is very healthy, indicating that a company regards repurchasing its own shares as the best investment for the coming year."

On Monday, NVIDIA's stock price rose by nearly 2%. On the same day, the company also announced new software and hardware solutions for controlling the AI intelligent agent.

“Growth Value Stocks”

With the surge in demand for graphics processors used to build and run the AI models and services, NVIDIA's revenue and cash flow have also seen explosive growth, and the company is intensifying its capital return plan.

The company has sent a signal to investors that growth will continue until the beginning of fiscal year 2028. In August, NVIDIA told investors that it expects sales to grow by 70% in fiscal year 2028, which means the company's sales will be several hundred billion dollars higher than Wall Street's previous forecasts.

Earlier this month, Jensen Huang told investors at a Goldman Sachs conference that NVIDIA was "misunderstood," and implied that the company deserves a higher valuation whether measured by growth or future earnings.

Jensen Huang said, "We are the first and only growth-oriented value stock in the world. People are trying to figure out which category we really belong to. We are both."

Last month, Jensen Huang told Jim Cramer of CNBC: “Buying back NVIDIA shares is an excellent opportunity.” Now, he is using the company’s money to prove those words.

NVIDIA previously stated that it plans to return approximately half of its free cash flow to investors through stock repurchases and reinvestments. If the chip manufacturer uses up all of its current authorized quotas, the number of its outstanding shares could decrease by 4%.

Jensen Huang said on Monday in the program Squawk Box on CNBC: “In the coming years, we will generate a large amount of cash. As we have more and more cash, we hope to return it to our shareholders.”

Deepwater Asset Management Managing Partner Jean Munster stated on Monday in the CNBC program “Fast Money” that investors seem to be concerned that after several years of strong growth, the pace of growth may slow down.

Munster said, "It's difficult for investors to believe that this growth can continue. The downward slope of the growth rate is the reason why valuations are being traded at such compressed levels."

Calculated based on the expected price-earnings ratio for the fiscal year 2028, NVIDIA's valuation is lower than Apple's 35.5 times, Alphabet's 22.6 times, Microsoft's 21.7 times, and Amazon's 23.2 times. Compared to NVIDIA's main competitors in the AI data center chip market, its valuation is also lower, including Broadcom's 18.2 times, Supermicro Semiconductor's 38.2 times, and Intel's 54.7 times. None of the aforementioned competitors have predicted a 70% increase in sales next year.

Broadcom's silicon business revolves around developing custom chips in collaboration with companies such as OpenAI and Google. AMD competes with NVIDIA in the GPU field, but its market share is only a fraction of that of the latter. Intel produces central processing units and also engages in AI chip manufacturing, but it does not have any products that can compete with NVIDIA GPU.

Melius Research Analyst Ben Reitzes gave a buy rating for this stock and stated that considering its growth rate, this stock "should be priced even higher."

On Monday, Reichs said in the CNBC “Closing Bell” program: “Buying back shares on an increasingly large scale will truly help to solve this problem and achieve a better valuation.”

Analyst UBS stated in a report on Monday that NVIDIA's share buyback could increase the company's earnings per share for the fiscal year 2027 by 8 cents. The firm estimates that NVIDIA's earnings per share for the fiscal year 2027 will be $17.16.