Despite a recent dip, Nvidia (NASDAQ: NVDA) stock has been on a tear with a gain of more than 600% since the start of 2023. Its market capitalization soared from $360 billion to $2.5 trillion over that period, the fastest pace of value creation in stock market history.

But is it justified? Some analysts on Wall Street think Nvidia stock is overvalued, and they might be right in the short term based on its price-to-earnings (P/E) ratio. The P/E ratio is calculated by dividing a company's share price by its earnings per share (EPS), and it's one of the most widely-used valuation metrics among investors.

The Nasdaq-100 index, which includes Nvidia and all of its big-tech peers, trades at a P/E ratio of 30.7. Nvidia stock trades at a P/E ratio of around 58 based on its trailing-12-month EPS of $1.80, making it nearly twice as expensive as the index.

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Source Fool.com