The Department of Justice is probing Nvidia's (NVDA) $17 billion non-exclusive licensing deal with AI inference firm Grok, per the New York Times. The DOJ claims the deal is structured to avoid regulatory scrutiny. NVDA is up about 18% so far this year and down on the week.
The core question: does NVDA's valuation match its growth and long-term guidance? For the first time in a while, the stock rose after an earnings report. What changed some investors' minds was guidance for 70% revenue growth through fiscal year 2028 - the company is now putting longer dates on its outlook. Even so, Jensen Huang called NVDA's valuation "one of the great mysteries" a few months ago. The AI trade is being steeply discounted, as if these numbers can never last, yet the company keeps delivering them. It is odd to look at one of the largest companies in the world, with a huge market cap, and ask whether it is undervalued.
At the Goldman Sachs Communacopia conference, Huang pushed back on claims that AI is slowing. He said the AI market could grow into a $3 trillion to $4 trillion industry by 2030. He also called NVDA "the first and only growth value stock."
The Bull Case on Value
The forward PE is cheap on a historical basis - below 20 times over the next 12 months. Competitors AMD (AMD) and Intel (INTC) trade far above that. NVDA is inexpensive by that measure.
Part of the challenge is the law of large numbers - it is the biggest market cap and the biggest company out there. There is also the circular investment pattern in the market: NVDA invests in companies that then buy GPUs and other technology from it. NVDA is trying to expand into a full stack. It bought Hugging Face and is entering the CPU market with Vera Rubin, which will compete directly with Intel (INTC) and AMD (AMD) and take market share from them.
At the Goldman conference, the company stated its investments are not circular. Grace Blackwell shipments are up 27% month-to-month, giving clarity on growth rates.
Last earnings showed 106% growth from a year earlier, reaching $96.2 billion. Data center revenue grew 117% year-over-year. One caveat was gross margins at 75%; the company expects those to pull back a point or two, bottoming around 71.5% to 72% - still strong for this space. Broadening the chart to the last five years tells the story: up 17% this year with a lot of consolidation over the past 12 months, after a great run.
Bullish Trade: Call Diagonal
Rather than buying the stock, which pays only a tiny dividend not worth worrying about, this uses a call diagonal. Buying the October 2nd expiration (21 days out, three weeks) 220 strike call, just out of the money with the stock near 219. Against it, selling the September 18th monthly 230 strike call, expiring in seven days. That makes a bullish $10 wide call diagonal costing about a $6 debit ($600 per spread), currently trading about a nickel lower.
The debit is less than the width of the diagonal, so any close above the break-even, around 220.50 to 221, is profitable. Profitability maxes out right at the 230 short strike; above 230 you may lose some upside but stay profitable. The key edge is the ability to roll the short option closer to expiration over the next seven days, collecting credits that raise potential profit, lower the break-even, and cut the risk (the debit paid). NVDA now has three weekly options that expire Monday, Wednesday, and Friday, giving more chances to roll while the market is open. Volatility is relatively flat between the two option series.
Bearish Trade: Put Diagonal
More directional, so no need to wait for the full move. Using the same October 2nd weekly series (21 days out), buying the slightly in-the-money 220 strike put and selling the 210 strike put - a bearish $10 wide put vertical. It costs roughly a $360 debit, possibly around $380 since the stock pulled back. Risk is $360, break-even is 216.40 to the downside, less than 2% below the current share price.
Potential profit is $640 against the $360 debit - close to a triple if it works. The flexibility: no need to wait 21 days. If the stock drops to 215, 212, or 210 and the vertical expands, all or part of the position can be closed early while the market is open. This works as downside protection or a hedge if you are long NVDA stock and want to protect gains. Since NVDA is such a big weight in the S&P 500, Nasdaq 100, and the Dow, the trade can also serve as a broad market hedge.
