Nvidia (NVDA 1.99%) has been this year’s most influential stock, making big gains in the process. The artificial intelligence (AI) leader’s sales and earnings have continued to grow at an impressive pace, and the company’s share price is up nearly 180% so far this year.

This is the latest leg of an incredible rise that has seen the company’s share price rise almost 860% since the beginning of 2023 and more than 2,650% over the past five years. Thanks to these explosive gains, the company’s price/earnings ratio has risen to 66 as of this writing.

Such a valuation comes with heavy expectations for growth, and it’s not unreasonable to worry that the chip company’s stock price has risen too much too quickly. But there’s another valuation metric that suggests ultra-hot AI stocks still have upside potential.

Nvidia has growth to support its valuation

The stock’s gains don’t seem excessive in light of Nvidia’s recent business results. For example, in the first half of fiscal 2025 (six months ending July 28, 2024), revenue increased 205% year over year and earnings per share increased 285% over the same period.

Nvidia trades at a forward price on expectations that its impressive growth will continue price/earnings-growth (PEG) ratio roughly 0.36. A PEG ratio of less than 1.0 is generally viewed as a signal that the stock is undervalued because its expected earnings growth is high relative to its earnings-based valuation.

Data: Y Charts.

While there’s no doubt that Nvidia’s sales and earnings growth will eventually have to slow, the company’s leadership position, momentum, and PEG ratio suggest the stock still has room to move. With the launch of next-generation Blackwell processors planned for later this year, the company may have another major sales and earnings catalyst on the near horizon.

Spending on GPUs to power AI applications will undoubtedly go through some cyclical shifts, but the rise of AI is still in its infancy and Nvidia remains vital to that rise.