You often hear people talking about multiples and I almost always use them to get a sense of a company’s current valuation. However, Nvidia proved that, isolated (as we know), multiples are useless. Forward-looking estimates are made by analysts based on their projections of who knows what, but it is that, their projections. Then, platforms let you see things such as the forward PE a company is trading at.

Even though it can act as a form of guidance or rough estimate, we have to be very careful with them. Nvidia has been called crazy overvalued throughout 2023 and that’s mainly due to what analysts expected the company to earn. Before reporting results, Nvidia traded at a 70 forward PE ratio. After reporting, the multiple CONTRACTED to 43. Why? Analysts simply changed what they expect of Nvidia’s future after that monster guidance.