Is Nvidia Stock the Best Proof of Warren Buffett’s Key Investing Principle?

Warren Buffett is one of the most successful investors in history, with an estimated net worth of $155 billion. His long-term investing approach has made him a legend in the stock market. But what makes Buffett’s strategy so effective?

One of his most important investing principles is that growth is crucial to value. In his 1992 letter to Berkshire Hathaway shareholders, he stated:

“Growth is always a component in the calculation of value.”

This means a stock isn’t just valuable based on where it is today—it’s also about where it will be. But how to pick a stock that has long-term potential? A perfect case study of this principle is Nvidia (NVDA).

For many years, investors considered Nvidia a high-risk, high-growth tech stock. But looking at its performance over time, was it a value stock in disguise? It’s time to dive into what made Nvidia such a wise investment and what lessons investors can learn from it.

Why Did Nvidia Look Overpriced in 2023?

Nvidia is a leading producer of graphics processing units (GPUs) used for gaming, cryptocurrency mining, and, more recently, artificial intelligence (AI) applications. The explosion of AI-driven demand has pushed Nvidia’s stock to new heights, making it one of the most closely watched stocks in the market.

However, in early 2023, Nvidia stock seemed too expensive for many investors.

At the time, Nvidia’s price-to-earnings (P/E) ratio was 62—far higher than the S&P 500’s average of 22. Traditional value investors saw this as a red flag, believing Nvidia was overvalued. Many avoided the stock, assuming they would be overpaying.

But was that the right call?

Why Was Nvidia a Great Value Stock?

Fast-forward to February 26, 2025, when Nvidia reported its latest financial results. The company posted earnings per share (EPS) of $2.94 for the fiscal year 2025.

Looking back, Nvidia’s share price at the start of 2023 (adjusted for stock splits) was $14.50. Based on its 2025 earnings, Nvidia was trading less than five times its future profits.

So, investors who dismissed Nvidia due to its high valuation failed to account for its future growth. This is precisely what Buffett warned about in his shareholder letter.

For perspective:

• In the fiscal year 2023, Nvidia’s EPS was just $0.17.
• In just two years, its profits surged by 1,700%.
• Investors who recognized Nvidia’s growth potential saw the stock skyrocket over 700% since early 2023.

This proves a critical investing lesson: a stock may look expensive today, but if its earnings grow fast enough, it can be undervalued in hindsight.

What Can Investors Learn from Nvidia?

Nvidia’s success story highlights a key point: Investors should focus on future potential, not just historical performance when evaluating stocks.

Legendary investor Bill Miller once said:

“100% of the information you have about a company represents the past, and 100% of the value depends on the future.”

This aligns perfectly with Buffett’s philosophy. Before investing, ask yourself:
✅ Will this company grow over time?
✅ Will its products or services be more valuable in the future?
✅ Does its stock price reflect future earnings potential?

While no one can predict the future with certainty, Buffett encourages investors to stay within their “circle of competence.” This means focusing on industries and companies they genuinely understand.

The opportunity was clear for those who grasped Nvidia’s potential in AI, gaming, and data processing—even when the stock seemed expensive.

Could This Happen Again?

Many investors missed Nvidia’s historic rise because they focused only on traditional valuation metrics. The same mistake could happen again with other high-growth stocks that seem expensive today.

While not every stock will replicate Nvidia’s success, investors who take a long-term perspective and recognize future earnings potential may avoid missing out on game-changing opportunities.

The key takeaway? Growth and value go hand in hand. Nvidia’s story proves that the best investments aren’t always obvious—but those who think ahead often reap the rewards.